Oil rises 2% on US Gulf shutdowns, outlook weak

[NEW YORK] Crude settled higher on Tuesday as companies shut down some US Gulf of Mexico oil production ahead of an approaching storm, although surging coronavirus infections and rising Libyan supply limited gains.

Companies including BP, Chevron, Shell and Equinor ASA evacuated rigs or closed facilities.

So far producers have shut 16 per cent, or 294,000 barrels per day (bpd) of oil output due to Zeta, which weakened to a tropical storm on Tuesday from a hurricane on Monday, the US National Hurricane Centre (NHC) said.

Brent crude closed up 75 cents, or 1.9 per cent, at US$41.21 per barrel by 1:22 EDT (1722 GMT). US oil gained US$1.01, or 2.6 per cent, to US$39.57. Both contracts fell more than 3 per cent on Monday.

The storm-induced bump in prices may be short-lived, however, with demand expected to weaken anew with coronavirus cases rising.

"We have a lot of weakness...no vaccine, no stimulus, and the very real possibility of a contested election in a couple days, and a stock market that won't react positively to that," said Bob Yawger, director of energy futures at Mizuho.

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Libya's production should rebound to 1 million bpd in coming weeks, complicating efforts by other Opec members and allies to restrict output.

The Organization of the Petroleum Exporting Countries and allies, known as Opec+, are planning to increase production by 2 million bpd from January after record output cuts this year.

That would cut overall reductions to 7.7 million bpd - still an enormous amount by the standards of major oil producers, but it may not be enough to offset weak demand.

Russian President Vladimir Putin, speaking last Thursday, did not rule out extending the cuts for longer.

"As the virus continues to spread, the odds of additional Opec+ production tends to diminish in helping to provide some balance to the market," said Jim Ritterbusch, president of Ritterbusch and Associates.

The latest weekly US oil inventory figures, due later on Tuesday and on Wednesday, are expected to show rising supplies.

Analysts polled by Reuters expect crude stocks to rise by about 1.1 million barrels.

REUTERS