Oil prices fell more than 2% on Friday as traders grew less concerned about potential disruptions in supply from a hurricane in the U.S. Gulf of Mexico, and China’s latest economic stimulus measures failed to meet expectations.
By 1:32 p.m. ET (1832 GMT), U.S. West Texas Intermediate (WTI) futures had dropped 2.8%, or $2.01, settling at $70.35 per barrel. Meanwhile, global benchmark Brent crude futures were down 2.3%, or $1.77, at $73.86 per barrel.
The downturn in oil prices came after fears of prolonged supply disruptions in the Gulf of Mexico subsided. Energy producers had shut down more than 22% of their oil output in the region earlier this week as a precautionary measure against Hurricane Rafael, a storm that had been forecast to threaten oil infrastructure. This precautionary shutdown had initially driven oil prices up by over 1% earlier in the week, as traders anticipated supply shortages.
However, as new forecasts on the storm’s trajectory emerged, the risk of significant damage to oil production in the Gulf of Mexico diminished. “Threats of supply outages due to Hurricane Rafael are subsiding as the storm shifts to circling in the center of the Gulf of Mexico for the next five days or so,” said Alex Hodes, an analyst at brokerage firm StoneX, in a client note. The storm had already weakened to a Category 2 hurricane by Friday, according to the latest advisory from the U.S. National Hurricane Center.
Despite having caused significant damage in Cuba earlier this week, Hurricane Rafael’s reduced intensity and its changing course helped alleviate concerns about long-term supply disruptions from the Gulf, which houses some of the most critical U.S. oil infrastructure.
In addition to the reduced risk from the hurricane, oil prices were also under pressure from disappointing economic data from China, the world’s largest oil importer. China’s latest economic stimulus package, which focused on easing debt repayment for local governments, failed to deliver the kind of targeted demand boost that many oil traders had hoped for. According to Giovanni Staunovo, an analyst at UBS, the package “does little to directly target demand” for oil. Staunovo suggested that some market participants were hoping for more aggressive stimulus measures that could stimulate consumption and support oil prices, but the package fell short of these expectations.
China’s struggling economy has been a significant headwind for oil prices in recent months. Deflationary pressures, such as falling consumer prices and declining industrial production, have hindered oil demand growth. Data for October showed that China’s crude oil imports fell for the sixth consecutive month year-over-year, further dampening the outlook for global oil demand.
Adding to the bearish sentiment, U.S. crude inventories have been showing signs of recovery, and investors have been taking a cautious approach amid broader economic uncertainties, including inflation and global trade tensions.
However, oil prices were not entirely devoid of support. Expectations that tighter sanctions on oil-producing countries like Iran and Venezuela could be on the horizon under a new U.S. administration provided some upward pressure. The prospect of a tougher stance on these nations’ oil exports could limit global supply and potentially support higher prices. U.S. President-elect Donald Trump, who has a history of taking a hard line on oil sanctions, is expected to continue pressuring these countries, which would further tighten the global oil market.
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In addition, the U.S. Federal Reserve’s decision on Thursday to cut interest rates by a quarter percentage point provided a modest boost to oil prices. A rate cut generally encourages investment and spending, which could support oil demand in the longer term.
Despite the drop in prices on Friday, the market remained relatively stable on a week-over-week basis. Both WTI and Brent were still on track for approximately a 1% gain over the course of the week, although Friday’s losses were significant enough to temper that outlook. “In the short-term, oil prices might rise if the new President Trump is quick on the draw with oil sanctions,” said PVM analyst John Evans. The looming uncertainty surrounding U.S. sanctions on key oil-producing countries could keep oil traders on edge, especially as they weigh the impact of tightening global supply.
In conclusion, while oil prices experienced a sharp decline on Friday due to easing concerns over Hurricane Rafael and disappointing Chinese stimulus measures, the broader outlook remains influenced by geopolitical risks, economic policies, and global demand trends. Traders will continue to monitor developments in the U.S., China, and other major oil producers for further signals on price direction in the coming weeks.
