Oil prices climb as two hurricanes shutter U.S. offshore production

SINGAPORE (Bloomberg) --Oil edged higher as production was disrupted by two storms approaching the U.S. Gulf Coast.

Futures rose 0.8% in New York. Almost 58% of crude output, or more than 1 million barrels a day, in the Gulf of Mexico was closed as of midday Sunday. The storms Marco and Laura -- the latter of which is forecast to become a hurricane -- are coming from different directions and have the potential to cause billions of dollars in damage. The weather systems could force refineries to shut and also hit demand when they near land.

Crude, and other risk assets including equities, received a boost on Monday amid a thaw in U.S.-China relations. President Donald Trump’s team was said to be privately seeking to reassure American companies that they can still do business with the WeChat messaging app in China.

U.S. benchmark crude futures have been rising -- albeit very gradually -- this month amid a steady decline in domestic crude and gasoline inventories, and tentative signs that demand is returning. That’s starting to encourage the return of production, however, with drillers in the Permian Basin putting an additional 10 rigs to work last week for the biggest jump in activity this year.

“The situation on the oil market over the next three days is likely to be determined partly by news from the Gulf of Mexico,” said Eugen Weinberg, head of commodities research at Commerzbank AG. “The psychological effect should not be underestimated,” Weinberg said of the impact of the two storms on refining activity and oil production in the U.S.

Prices:

• West Texas Intermediate for October added 32 cents to $42.66 a barrel at 10:24 a.m. in London
• Brent for the same month rose 34 cents, or 0.8%, to $44.69
• The global benchmark’s premium over WTI closed at its narrowest since July 27 on Friday

The shape of the oil futures curve has suggested concerns about oversupply have grown in recent week. On Friday, Brent futures for October traded at their biggest discount to the November contract since May, a structure known as contango. Speculators have also turned less bullish on WTI, last week trimming their bets to the smallest since May.

Other market drivers:

• Prospects for an imminent truce in oil-rich Libya dimmed after forces loyal to eastern commander Khalifa Haftar scoffed at the United Nations-backed government’s announcement of a cease-fire as “media marketing.”
• Chinese refiners have massively boosted imports of diluted bitumen in a sign of either their desperation to produce fuel and asphalt for a rebounding economy, or that they’re skirting local import quotas and even international sanctions.
• Saudi Aramco reshuffled its senior management and created a division focused on “portfolio optimization,” as the world’s biggest oil producer adapts to low crude prices and seeks new ways to raise cash.