Oil prices drop as markets eye OPEC output meeting
04:50, 31 August 2021
Oil prices eased on Tuesday on expectations that the Organisation of Petroleum Exporting Countries (OPEC) is set to raise output amid concerns of softening crude oil demand after hurricane Ida forced refineries in the Gulf of Mexico to shut operation.
Brent dropped 0.44% to USD71.93 (GBP52.12) per barrel on Tuesday midday in Asia. West Texas Intermediate (WTI) traded 0.39% lower at USD68.95 a barrel.
“Oil prices have the potential to move down-ward in short term as markets are assessing the impact from the damages caused by Ida Hurricane and the prospect of more supply from OPEC+ ahead of their meeting this week,” Jakarta-based Monex Investindo Futures wrote on its market brief today.
OPEC supply
OPEC and its allies, including Russia, are set to meet on 1 September.
“We do not foresee any fireworks from the group following the more recent recovery in prices. And we expect that they will continue the easing of their supply cuts as planned. OPEC+ is set to increase output by 400Mbbls/d per month through until the end of the year,” said ING Group in a note published on Monday. Mbbls/d means thousand barrels per day, whereas MMbbl is one billion barrels.
The Amsterdam-based bank noted that Wednesday’s meeting will be the first OPEC+ meeting since the US administration called on OPEC+ to increase supply further.
“We do not believe the group will entertain this idea,” the bank added.
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Assessing damage
The potential of higher supply from OPEC came even as the full picture of the damage from hurricane Ida are yet to emerge. The US Gulf Coast has a refining capacity of about 9.118 million barrels per day or 47.9% of the total US refining capacity.
The US Interior Department’s Bureau of Safety and Environmental Enforcement said on 30 August that based on operator reports, it was estimated that 94.6% of current oil production in the Gulf of Mexico has been shut in. According to ING Group in its note, more than 2MMbbls/d of refining capacity has been shut due to the hurricane.
“The market seems rather optimistic at this point that the damage isn’t going to be that bad, but it may take hours or days before we know for sure,” wrote Phil Flynn, analyst from Price Futures Group.