Oil continues to struggle amidst supply glut

Oil prices have struggled since the beginning of the week as the negative effects of Hurricane Rafael on US oil production have started to diminish. This has reduced the likelihood of production disruptions and lower supply, allowing output to return to normal levels, which is affecting prices.

Oil was largely steady on Thursday, with traders holding fire after declines earlier this week on a stronger US dollar and worries about rising supply amid slow demand growth. Brent crude futures were down 3 cents to $72.25 a barrel at 0937 GMT. US West Texas Intermediate crude futures were down 7 cents to $68.36.

Several factors have emerged in global oil markets that may contribute to a price drop shortly, analysts say. Most of these are linked to imbalances in supply and demand, while some are related to political and economic developments in the United States and major economies.

The hurricane affected many regions where oil and natural gas production thrives in the US. Oil production in the Gulf of Mexico dropped by around 16 per cent last week, leading to a supply shortage and a rise in global prices. Oil production fell by 482,790 barrels, and natural gas production declined by 310 million cubic metres as of last Sunday, according to the US Bureau of Safety and Environmental Enforcement.

Last year’s price increase, exceeding $90 per barrel, helped decrease US commercial crude oil inventories by about 53 million barrels from June to September 2023. “Despite low demand forecasts and speculation that the Trump administration might soon adopt policies to increase supply, prices largely ignored these factors. Recent US commercial oil inventories dropped to 415 million barrels, the lowest in several years, contributing to the rise in US crude,” Mohamed Hashad, chief market strategist, Noor Capital on Oil Prices, wrote in a note.

The newly elected president of the United States is expected to adopt policies that support fossil fuel production in the US and encourage more oil and natural gas extraction in the coming period. This would positively impact production levels but negatively affect prices. “Trump’s victory has led to speculation that he might repeal recent clean energy legislation enacted under the Biden administration, potentially canceling billions of dollars in incentives for renewable energy use. Additionally, it is expected that the US Treasury Department may review current policies that offer companies tax breaks worth billions for using clean energy, such as green hydrogen,” Hashad said.