Oil Up Over 1% As Idalia Closes In On U.S. Gulf Coast

The commodity was also supported by softening U.S. labour demand: File Image/Pixabay

Oil trading sentiment on Tuesday was virtually unchanged from the previous session, with all eyes focused on the potential for damage caused by Hurricane Idalia, set to hit the U.S. Gulf Coast on Wednesday.

Oil was also supported by a decline in the U.S. dollar (caused by data showing softer labour demand): Brent settled up $1.07 at $85.49 per barrel, while West Texas Intermediate settled up $1.06 at $81.86 per barrel.

The data, provided by Washington's Labour Department on Tuesday, showed that job openings dropped by 338,000 to 8.8 million in July, the lowest level in nearly 2-1/2 years, stoking hopes that the Federal Reserve would keep interest rates unchanged next month – even though the Fed most recently warned that another rate hike was likely.

Meanwhile, Idalia was forecast to reach Category 3 strength, and Robert Yawger, analyst at Mizuho, pointed out that this will likely harm fuel distribution and consequently affect consumption in the affected regions ahead of the Labour Day federal holiday on Sept. 4.

Chevron Corp evacuated some staff from three oil producing platforms in the region as a precautionary measure, even though the storm is not expected to damage such infrastructure.

Giovanni Staunovo, analyst at UBS, observed that oil prices also benefitted from a theoretical steep decline in U.S. crude stockpiles: a Reuters poll (notorious for their inaccuracies but influential to traders nonetheless) had inventories dropping by 3.3 million barrels in the latest week; official government figures will be posted on Wednesday.

Phil Flynn, senior market analyst at Price Futures Group Inc., summarized the current state of the oil market by remarking, "Even with the potential for some demand destruction [from Hurricane Idalia], the coming crude oil supply squeeze is becoming more painfully obvious."

That said, Tuesday offered its fair share of bearish news, mainly in the form of China's biggest refiner, Sinopec, disclosing that the nation's product demand in the second half of this year would expand at a slower pace than in the first.

China is planning to increase refined oil products exports to 3.53 million tons next months, up by 9.3 percent from the planned August levels.