Brent crude futures slipped towards USD 112 per barrel on Wednesday on expectations Hurricane Isaac, which hit land in Louisiana, would spare Gulf Coast oil production facilities from significant damage.
The US energy industry has shut most facilities in the Gulf of Mexico, cutting the region’s oil production by more than 90%. Most shut downs were precautionary.
An unexpected rise in crude inventories in the United States and data showing weakening US consumer confidence added to the bearishness, although lingering tensions in the Middle East supported prices.
“The hurricane in the US has already made landfall and expectations are that oil production and refineries in the Gulf Coast will be back onstream in the near-term,” said Victor Shum, a senior partner at Purvin & Gertz, an oil consultancy in Singapore. “That has resulted in the drop in oil futures.”
Brent October futures had fallen 28 cents to USD 112.30 per barrel at 0411 GMT, after dropping below USD 112 in early trade. US crude fell 57 cents to USD 95.78 per barrel.
Worries about supply disruptions resulting from the hurricane pushed Brent to a high of USD 115.50 per barrel on Monday, while Nymex futures hit a peak of USD 97.72.
Isaac crashed ashore in southeast Louisiana on Tuesday, bringing high winds and soaking rains that pose the first test for multibillion-dollar flood defenses put in place in New Orleans after Hurricane Katrina devastated the US Gulf Coast seven years ago.
Economic uncertainties
Ongoing concerns about the global economy and uncertainties about the US Federal Reserve’s stance on further easing were also muddying the outlook for oil demand, adding to the pressure on prices.
While data showed home prices rose in June for a fifth-straight month, another measure of US consumer confidence slipped to a nine-month low in August as Americans were more pessimistic about business and labour market prospects.
“The economy has been slow to recover with limited job opportunities, heightened international risks and political uncertainty,” Michelle Meyer, senior US Economist, Bank of America-Merril Lynch, said in a report. “This will keep consumers on edge and the economic growth sluggish.”
Further cues on whether the Fed is leaning towards more stimulus is expected from Chairman Bernanke’s speech on Friday at an annual meeting at Jackson Hole, Wyoming.
Bernanke has used the event for the past two years to indicate the Fed’s policy intentions.
A poll of 61 economists gave a 45% chance of the Fed announcing a third round of quantitative easing, or QE3, after its policy meeting on September 12-13.
Outlook for the US economy is also clouded as the country faces its worst drought in over five decades, especially over key farming states.
