Oil prices rose 2% on Friday and posted their biggest weekly gains in more than a year as energy firms began shutting down US production in the Gulf of Mexico ahead of Hurricane Ida, which is expected to hit early next week.
Historically, crude oil prices rise as hurricanes approach, oil prices soaring even though they weren’t needed as refineries were shut down during the storm.
Brent futures were up $1.63, or 2.3%, to $72.70 a barrel, while West Texas Intermediate (WTI) crude was up $1.32, or 2.0%, to $68.74.
This was the highest close since August 2 for Brent and since August 12 for WTI.
During the week, Brent rose over 11% and WTI more than 10%; this was the largest weekly percentage gain of over 10% for both since June 2020.
Energy traders are pushing crude oil prices higher on the expectation of cuts in production in the Gulf of Mexico and OPEC+’s ability to resist raising output given the recent impact of the Delta variant on crude oil demand.
Offshore wells in the Gulf of Mexico account for 17% of US crude oil production, while more than 45% of total US refining capacity lies along the Gulf Coast.
Oil producers on Friday halted 59% of Gulf of Mexico crude oil production as the ninth storm of the season made its way into US offshore oil fields, according to the Bureau of Safety and Environmental Enforcement.
U.S. oil and gas companies raced to complete evacuations from offshore Gulf of Mexico platforms before Hurricane Ida hit Louisiana as a major storm early next week.
Traders say offshore crude prices and Gulf Coast crude oil qualities have strengthened due to hurricanes.
U.S. oil rigs rose by 5 to 410 this week, recording their highest level since April 2020, according to Baker Hughes. In August, drillers added 25 oil rigs, the most in a month since January, and increased the number of rigs for 12 consecutive months for the first time since July 2017.
Oil prices were also supported by the US dollar falling to a one-week low against a basket of other currencies following comments from US Federal Reserve Chairman Jerome Powell.
A weak US dollar means oil is cheaper for holders of other currencies.
In his statement confirming the ongoing economic recovery in the USA, Powell explained in detail why the current increase in inflation is seen as temporary.
The Organization of the Petroleum Exporting Countries and its allies, including Russia, will meet on September 1 to discuss a plan to increase production by 400,000 barrels a day each month for the next few months.
