UBS: Francine may have disrupted 1.5 million barrels of US crude

• Analysts at Wall Street bank UBS estimate that Hurricane Francine could have disrupted up to 1.5 million barrels of US oil production.
• The Weather Channel expects Hurricane Francine to “continue to weaken as it moves south today.
• Oil prices rose on Thursday morning, with both WTI and Brent gaining more than 2 percent on the day.

Analysts at the Wall Street bank UBS estimate that Hurricane Francine may have been disturbed up 1.5 million barrels of total U.S. crude oil production, according to a Thursday report from CNBC. Oil prices have reversed course over the past two days, with Brent crude for November delivery traded at $71.77/bbl in Thursday’s session at 10:30 a.m. ET, off Tuesday’s two-year low of $69.00/bbl, while October WTI crude was trading at 68.62 USD/barrel from USD 65.56.

“Hurricane Francine likely disrupted about 1.5 million barrels of US oil production, which we estimate will reduce September production in the Gulf of Mexico by about 50,000 bpd.,” Giovanni Staunovo, an analyst at UBS, told clients in a note on Thursday.

UBS predicted that oil prices will continue to rise in the near term as inventories decline and supply lags demand growth.

The Weather Channel expects Hurricane Francine to “leadcontinues to weaken as it moves south today, but the system and its possible remnants will carry flooding and tornado threats through the end of the week.”

Commodity analysts at Standard Chartered argued that positioning in oil futures markets had become extreme enough to distort price risks to the upside. In addition, they pointed out that oil markets are set to tighten further in the coming months as some OPEC+ members cut production.

In July, Russia, Iraq and Kazakhstan submitted their compensation plans to the OPEC Secretariat for volumes of overproduced crude oil for the first six months of 2024. According to analysts, compensation for overproduction will lead to a decrease in OPEC production by 530 kb/d in Q4-2024; 540 kb/d lower in Q1 and Q2-2025 and 560 kb/d lower in Q3-2025 if all commitments are kept.

StanChart argued that the current market assumption that there will be no offset reduction is wrong, saying that Saudi Arabia in particular is unlikely to accept any further pullback on promises made by overproducers. Commodity experts noted that recent visits to Iraq and Kazakhstan by OPEC Secretary General Haitham al Ghais suggest that OPEC intends to follow through on promised cuts.

By Alex Kimani for Oilprice.com

More top reads from Oilprice.com