Oil Prices Rise Amid Shipping Disruptions and Hurricane Threats

Crude oil prices moved higher this week as renewed attacks on shipping in the Strait of Hormuz, concerns over Gulf of Mexico production disruptions from Hurricane Isaias, and a larger-than-expected decline in U.S. crude inventories supported the market.

However, President Trump's announcement that the U.S. would delay further military action against Iran until after the midterm elections limited the rally. Natural gas markets also faced competing influences, with hurricane-related supply concerns offset by moderating temperatures and a larger-than-expected storage injection.

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Oil

Fundamental Analysis

Iran's renewed attacks on shipping, concerns over Gulf of Mexico production outages associated with Hurricane Isaias, and a large inventory draw moved crude prices higher this week. However, President Trump's announcement that the U.S. would hold off on military action against Iran until after the midterm elections kept a lid on the rally.

November WTI reached a high of $93.20/bbl on Thursday and a low of $86.85 on Tuesday. Brent crude reached a Thursday high of $105.90/bbl and a Tuesday low of $97.05. Both grades settled higher for the week.

The WTI/Brent spread widened considerably to $12.60, largely reflecting increased shipping costs for Dated Brent and other physical crude volumes.

Iran again fired missiles at vessels attempting to transit the Strait of Hormuz. According to tanker-tracking firm Kpler, daily crude shipments through the Strait declined from approximately 12.3 million barrels per day on October 4 to 2.3 million barrels per day on October 7.

Houthi rebels also continued attacking Saudi Arabia while claiming control of the Bab el-Mandeb Strait. The increased threat to regional shipping has pushed both daily tanker rates and cargo insurance costs higher.

Saudi Arabia's East-West pipeline is operational again, with estimated flows of approximately 5.8 million barrels per day.

Meanwhile, the G7 pledged to release another 100 million barrels of oil and diesel. According to the commentary, these volumes largely represent accelerated deliveries of previously pledged supplies rather than additional commitments.

The International Energy Agency reported that approximately 325 million barrels of the 400 million barrels pledged in March have been delivered. Member countries are believed to retain as much as 1.1 billion barrels in strategic reserves.

Nevertheless, much of the Persian Gulf region's refining capacity remains offline, while another major Russian refinery was struck by Ukraine.

President Trump stated that the U.S. would not undertake additional military attacks against Iran until at least after the midterm elections, citing productive discussions between the two countries.

Significant differences remain over Iran's uranium enrichment program. Iranian officials have indicated that the country will neither end enrichment nor surrender its existing stockpile, while the U.S. position calls for enrichment to stop and the stockpile to be transferred to a third-party country.

Hurricane Isaias and Gulf Production

Hurricane Isaias developed quickly in the Gulf of Mexico this week, creating additional uncertainty for offshore oil and natural gas production.

The storm's projected track remained east of most offshore platforms and the Texas-Louisiana refining corridor. However, an anticipated landfall near the Florida Panhandle and eastern Alabama raised concerns about possible disruptions to refining operations in Mississippi and Alabama.

According to the commentary, approximately 1.3 million barrels per day of Gulf of Mexico production was shut in following standard platform evacuations. Production restoration was expected to begin within approximately 48 hours after landfall, subject to damage assessments.

U.S. Petroleum Snapshot

The Energy Information Administration's Weekly Petroleum Status Report indicated that commercial crude oil inventories decreased by 3.8 million barrels to 424 million barrels, approximately 1% above the five-year average.

The draw exceeded expectations. The American Petroleum Institute had forecast a 1.8 million-barrel decline, while analysts expected a draw of approximately 1.7 million barrels.

Gasoline inventories increased to 204.7 million barrels and remain approximately 6% below the five-year average. Distillate inventories declined by 40,000 barrels to 105 million barrels, approximately 12% below the five-year average.

Refinery utilization increased to 92.7%, compared with 92.5% the previous week, while crude inputs were approximately 16.5 million barrels per day.

Gasoline demand increased to 8.8 million barrels per day from 8.7 million barrels per day the previous week.

Crude imports increased to 6.8 million barrels per day from 5.7 million barrels per day, while crude exports rose to 4.8 million barrels per day from 3.6 million barrels per day. Refined-product exports increased to 8.1 million barrels per day.

The Strategic Petroleum Reserve declined another 780,000 barrels to approximately 283 million barrels, its lowest level since 1982. Inventories at Cushing, Oklahoma increased by 440,000 barrels to 23.7 million barrels, approximately 31% of capacity.

U.S. crude production increased to 13.98 million barrels per day, compared with 13.96 million barrels per day the previous week and 13.6 million barrels per day a year earlier.

The U.S. oil and gas rig count increased by five to 603, compared with 547 a year ago. Oil-directed rigs increased by six, while natural gas rigs declined by one.

Average gasoline prices declined to $4.37 per gallon, approximately $0.03 below the previous week but $1.26 above a year earlier. Diesel prices declined to $6.29 per gallon, approximately $0.08 lower for the week but $2.60 above year-earlier levels.

President Trump signed a waiver allowing broader use of red-dyed diesel, which is ordinarily exempt from the federal highway fuel tax and restricted to qualifying off-road uses such as agriculture and construction.

Tom notes that the measure would not change wholesale diesel prices and that limited availability could potentially increase prices for existing agricultural and other off-road users.

Consumer sentiment declined to 46.3 from September's 48.1, below analysts' expectations. Wholesale inventories increased 0.5%, while weekly unemployment claims declined to 197,000.

All three major U.S. stock indexes moved higher for the week, supported by technology shares. The U.S. dollar advanced for a fourth consecutive week amid expectations of additional Federal Reserve rate increases, while gold also finished higher.

Oil – Technical Analysis

November WTI NYMEX futures are trading within the ranges of their 8-, 13- and 20-day moving averages, with the 20-day average currently acting as resistance.

Volume is below the recent average at approximately 166,000 contracts. The Relative Strength Indicator has returned to neutral territory at 53.

Oil – Looking Ahead

Although the U.S. has pledged to delay military action against Iran until after the midterm elections, Iranian attacks on shipping have intensified. Disagreements over uranium enrichment also remain a significant obstacle to successful negotiations.

Following Hurricane Isaias, offshore operators will begin returning personnel to Gulf of Mexico platforms and assessing potential damage. Refining facilities in Mississippi and Alabama will also be evaluated for storm-related disruptions.

Hurricane season officially continues through November 30, and historically some of the strongest storms have occurred during October.

Both the IEA and OPEC are scheduled to release their monthly reports next week, potentially providing greater clarity on global supply and demand for crude oil and refined products.

With fall underway, cooler-than-normal temperatures could increase heating-oil consumption across the Northeast, strengthening demand for distillates.

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Natural Gas

Fundamental Analysis

With the beginning of October, lingering summer heat has started to dissipate across much of the country, reducing demand for natural gas-fired power generation.

A larger-than-expected storage injection added bearish pressure to November NYMEX natural gas futures, although Hurricane Isaias created concerns about Gulf of Mexico supply disruptions.

November Henry Hub futures reached a weekly high of $3.30/MMBtu on Thursday and a low of $2.997 on Monday.

Natural gas demand was estimated at approximately 106 Bcfd, reflecting a significant decline in power-generation demand, while supply was estimated at approximately 109 Bcfd.

LNG exports were reported at 18.6 Bcf, while natural gas exports to Mexico were approximately 7.0 Bcfd.

International natural gas prices remained elevated. U.K. NBP natural gas was quoted at $27.40/MMBtu, Dutch TTF futures at $25.65/MMBtu and Asia's JKM at $26.40/MMBtu as European and Asian buyers continued competing for available LNG shipments.

The EIA's Weekly Natural Gas Storage Report indicated an injection of 85 Bcf, compared with a forecast of 79 Bcf and a five-year average injection of 96 Bcf.

Total working natural gas in storage reached 3.500 Tcf, approximately 3.6% below the previous year but 2.0% above the five-year average.

Natural Gas – Technical Analysis

November NYMEX Henry Hub natural gas futures rallied primarily on Hurricane Isaias-related supply concerns before retreating following the larger-than-expected storage injection.

Prices remain above the 8-, 13- and 20-day moving averages. Volume is below the recent average, while the Relative Strength Indicator remains neutral at 58.

Natural Gas – Looking Ahead

Hurricane Isaias presents competing risks for natural gas markets. Offshore platform shut-ins reduce supply, while heavy rainfall and storm-related disruptions onshore can reduce electricity demand. High winds can also temporarily halt LNG shipments.

European natural gas storage is approximately 73% full, with projections indicating inventories could decline to 29% by the end of the heating season, or as low as 10% during a particularly harsh winter.

Qatar reportedly has several LNG tankers ready to move once regional shipping conditions permit safe passage. However, damage to the country's LNG infrastructure sustained earlier in the conflict could require three to five years to repair.

The near-term U.S. forecast calls for more seasonal temperatures, potentially increasing natural gas consumption for space heating in northern states.

With storage at 3.5 Tcf and four weeks remaining in the official injection season, weekly additions of approximately 125 Bcf would be needed to reach 4.0 Tcf by November 1.

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Weekly Oil & Gas Commentary is provided for informational and educational purposes and should not be considered investment, trading or financial advice.