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Futures Movers: Oil prices settle lower on strength in the dollar, demand worries

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Oil futures ended lower on Tuesday, with Brent building on weakness seen the previous session after Saudi Arabia slashed crude prices for Asia.

The weaker tone came as strength in the U.S. dollar helped crude erase an earlier bounce that followed unexpectedly strong Chinese trade data.

The drop in prices is a bit puzzling, said Michael Lynch, president at Strategic Energy & Economic Research, given that Chinese trade data were strong for August and a lot of U.S. production remains offline following Hurricane Ida, which “should be pretty bullish.”

There are “fears that delta will cause more economic disruption, but that doesn’t look like it’s going to happen,” Lynch told MarketWatch, speculating that the price decline may be due to profit-taking, “triggered by reports that the Saudis cut prices for oil to Asia.”

West Texas Intermediate crude for October delivery
CL00,
-1.34%

CLV21,
-1.34%

fell 94 cents, or 1.4%, to settle at $68.35 a barrel on the New York Mercantile Exchange, the lowest front-month contract finish since Aug. 26, according to Dow Jones Market Data. U.S. markets were closed Monday for the Labor Day holiday.

November Brent crude
BRN00,
-0.13%

BRNX21,
-0.13%
,
the global benchmark, lost 53 cents, or 0.7%, at $71.69 a barrel on ICE Futures Europe.

Brent fell Monday after Saudi Arabia’s state oil company Saudi Aramco cut its October official selling prices (OSP) for all grades delivering to Asia, while keeping prices unchanged for the U.S. and Europe. Arab light crude for delivery to Asia was slashed to a premium of $1.70 per barrel from $3 in September, according to a company document. The price cuts were the first in four months for the region.

Oil was lifted early Tuesday after China data showed the country imported 44.5 million tons of crude oil in August, noted Carsten Fritsch, analyst at Commerzbank, in a report. That works out to daily imports of 10.5 million barrels, an 8% rise from July and the first time above the 10-million-barrel-a-day threshold in five months. The rise comes as China set a somewhat more generous import quota.

August imports were still down 6% year over year, he noted, with China importing 5.7% less crude over the first eight months of the year than in the same stretch in 2020.

“The question for the market is whether this trend in China’s crude imports will continue upwards in the ensuing months. That is a complicated matter which the market is trying to get right, as it also depends on government policies on quotas and use of strategic reserves,” said Bjørnar Tonhaugen, head of oil markets at Rystad Energy, in a note.

“For now, the Asian market is in a ‘semi-bullish mode’ while awaiting new clues on the recovery of U.S. production and refinery activity after the hit of Hurricane Ida,” he wrote.

The Bureau of Safety and Environmental Enforcement estimated Tuesday that 79.3% of oil production in the Gulf of Mexico remained shut in a week after the storm, while 77.9% of natural-gas production remained closed.

Refineries in the Gulf Coast region have started to reopen, according to news reports, though several remain closed.

Hurricane Ida’s damage to U.S. offshore energy production is one of the most costly since back-to-back storms in 2005 cut output for months, Reuters reported Tuesday, citing the latest data and historical records.

On Nymex Tuesday, October gasoline
RBV21,
-1.21%

edged down by 1.1% to $2.13 a gallon and October heating oil
HOV21,
-1.82%

shed nearly 1.8% to $2.12 a gallon.

October natural gas
NGV21,
-2.91%

settled at $4.568 per million British thermal units, down 3.1%.

Weekly data on U.S. petroleum supplies will be released by the Energy Information Administration on Thursday, a day later than usual due to Monday’s Labor Day holiday.

Analysts at IHS Markit expect the EIA to report a decline of 3.5 million barrels in domestic crude inventories for the week ended Sept. 3. They also forecast supply declines of 3.3 million barrels for gasoline and 2.8 million barrels for distillates.

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