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Oil Futures Surge Amid Hurricane Fears and Market Recovery

By Colleen Howe

BEIJING (Reuters) – Oil futures experienced a significant increase during Asian trading hours on Monday, responding to the emergence of a potential hurricane system that is expected to affect the U.S. Gulf Coast. This upswing in prices also represents a recovery from the recent selloff sparked by disappointing U.S. jobs data released on Friday.

Market Price Movements

West Texas Intermediate (WTI) crude futures saw a rise of 72 cents, translating to a 1.06% increase, bringing the price to $68.39 per barrel as of 0635 GMT. Similarly, Brent crude futures noted a 71 cent increase or 1%, positioning the price at $71.77 per barrel. During earlier trading sessions, prices had initially surged by as much as $1 before retracting slightly.

Analysts have indicated that part of this price recovery can be attributed to the looming threat of a hurricane in the Gulf Coast region of the United States. The U.S. National Hurricane Center reported on Sunday that a weather system forming in the southwestern Gulf of Mexico is expected to strengthen into a hurricane prior to reaching the northwestern U.S. Gulf Coast, an area critical to the nation’s energy infrastructure since it is responsible for approximately 60% of U.S. refining capacity.

Market Sentiment and Historical Context

Independent market analyst Tina Teng expressed that the recovery in sentiment was a direct response to last week’s substantial selloff. At the close of trading on Friday, Brent crude had plummeted by 10% over the week, marking its lowest levels since December 2021. In the same vein, WTI experienced an 8% drop, also reaching its lowest close since June 2023, primarily driven by the poor jobs data released in the U.S.

Analysts had looked forward to a crucial government jobs report, which revealed that nonfarm payrolls had increased by merely 142,000 in August—falling short of market expectations. Furthermore, the July labor numbers were revised downward, now indicating a modest gain of only 89,000, the smallest increase since the significant job losses encountered in December 2020.

There has been speculation that the declining jobless rate may lead the Federal Reserve to opt for a smaller cut in interest rates, possibly only 25 basis points this month, rather than a more aggressive half-point reduction. Typically, lower interest rates can stimulate oil demand, fostering economic growth and rendering oil cheaper for holders of currencies other than the dollar.

Challenges in Demand and Global Economic Factors

Despite the rise in futures prices, the ongoing weak demand continues to impose limits on potential price gains. The weakness observed in China’s economy is attributed to a slowdown in growth coupled with inventory destocking, as explained by Jeff Currie, chief strategy officer of energy pathways at the U.S. investment giant Carlyle Group, during his remarks at the APPEC energy conference in Singapore on Monday.

Furthermore, refining margins in Asia have declined to their lowest seasonal levels since 2020, considerably affected by the subdued demand from the world’s two largest economies. Fuel oil exports destined for the U.S. Gulf Coast fell to their lowest levels since January 2019 last month, primarily due to the dropping refining margins.

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(Reporting by Colleen Howe; Editing by Tom Hogue and Christopher Cushing)

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