Oil falls from 2-month high after Hurricane Beryl forecast to spare crude production areas; Brent at $86

Crude oil prices gave up most of their earlier gains as the forecast for Hurricane Beryl continued to push it away from large offshore production areas in the US-regulated northern Gulf of Mexico. The storm is reported to be a dangerous category five hurricane moving through the Caribbean Sea.

Brent crude futures were last up 24 cents, or 0.28 percent, at $86.84 a barrel. U.S. West Texas Intermediate, or WTI, was up five cents, or 0.06 percent, at $83.23. Earlier on Monday, WTI climbed $1 to $84.38 a barrel on fears that Beryl could have a wider impact in the Gulf of Mexico as US demand for the fuel rises. Both benchmarks gained about two percent in the previous session.

What affects the price of crude oil?

-As new forecasts emerged on Monday, traders became less fearful of supply issues. Markets have realized that Hurricane Beryl will not shut down any major amounts of offshore oil production, according to analysts.

-Hurican is expected to have weakened to a tropical storm by the time it enters the Gulf of Mexico later this week, according to the US National Hurricane Center. U.S. gasoline demand is expected to increase as the summer travel season kicks into high gear with the Independence Day holiday this week.

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Where are prices headed?

Analysts said crude gained in a highly volatile session, with WTI prices hitting a 10-week high earlier in the week in international markets amid supply concerns and demand hopes. Rising tensions between Israel and Lebanon-based Hezbollah have added to worries in global oil markets.

Hurricane Beryl made landfall on the Caribbean island of Carriacou as a Category 4 storm, raising concerns that such a severe system early in the year could herald a serious hurricane season that is still months away from its typical peak, according to Kaynat Chainwala, AVP-Commodity Research, Kotak Securities.

OPEC crude output was flat for a third month, while some key members continued to pump above agreed limits. The cartel pumped an average of 26.98 bpd in June, or 80,000 bpd less than in May. Oil prices could remain supported due to supply concerns in the event of an escalation of the war, according to Chainwala.

Read also: Oil rises 6% in June on Middle East risk premium, hopes US Fed rate cut

A potential conflict could disrupt global oil supplies in the coming months. Also, the peak summer season in the US is driving up the price of crude oil. The market also takes into account a premium due to the US hurricane season.

“The strength of the dollar index, rising US bond yields and subdued US manufacturing activity data could limit gains in crude oil. We expect crude oil prices to remain volatile. Crude oil has support at $82.20-81.50 and resistance at $83.70-84.25. In INR, crude oil is supported at ₹6.870-6.810 and resistance to ₹7,040-7,110,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.