Oil prices are posting new gains this morning after Friday’s selloff, buoyed by falling production in various areas throughout the world. The UAE, OPEC’s third-largest producer, ordered its national oil company to cut future oil production, and markets are now expecting a 5% supply drop in September and a 30% cut in October.
In the US, Hurricane Laura continues impacting crude oil production even as physical fuel markets have mostly recovered from the storm. The Department of Interior reported yesterday that many Gulf oil rigs remain empty, and nearly 1.3 million barrels per day of production are still offline. Oil companies are in no rush to restore rigs, perhaps taking the opportunity to whittle down US crude inventories further. In Louisiana, hundreds of thousands remain without power in Laura’s wake, particularly in the Lake Charles area.
The oil industry is now plagued with the same challenge they’ve faced for the past six years – US shale. With prices above $40, many are watching to see if rigs will swarm back in the next few months. Last week brought a falling rig count, but the week prior saw double-digit growth. Countries like Saudi Arabia and the UAE will quickly grow tired of quotas if US producers steal their market share. Unlike OPEC nations, America’s oil industry is governed solely by free market supply and demand principles, so producers will do whatever is in their best interest. On the other hand, US shale producers have their own difficult challenge – how to grow without causing another price collapse. It’s a chicken-and-egg dilemma that will define the market’s recovery, and ultimately the price of oil in 2021.
Crude oil saw hefty upward movement early this morning, but has since shrunk back to just moderate gains. WTI crude is trading at $43.24, up 27 cents from Friday’s closing price.
Fuel prices are mixed this morning. Diesel is trading higher at $1.2193, up 0.3 cents. On the other hand, gasoline is trading at $1.3034, a loss of 1.2 cents. Today marks the end of the September gasoline contract, meaning tomorrow will bring a roll to October gasoline, which is seven cents lower. The official end of summer RVP gasoline season comes on September 15 for most areas, after which gasoline prices will fall in the physical markets.