Oil Posts Biggest Weekly Gain in More Than a Year Ahead of Ida

(Bloomberg) -- Oil advanced as a brewing hurricane shuts Gulf of Mexico crude production while the Federal Reserve reinforced its support to begin tapering stimulus by the end of the year.

Futures in New York rose 2% on Friday to post the biggest weekly gain in more than a year. Oil producers in the U.S. Gulf of Mexico have begun shutting production ahead of Hurricane Ida, which may make landfall in the New Orleans area in the next few days as a Category 3 hurricane. 

Meanwhile, Federal Reserve Chair Jerome Powell said the central bank could begin reducing its monthly bond purchases this year, though it won’t be in a hurry to begin raising interest rates thereafter. The central bank had hinted at such asset tapering plans weeks ago. 

“Clearly, the hurricane is what the market is focusing on now, at least in the short-term,” said Andrew Lebow, senior partner at Commodity Research Group. “We are going to be losing supply from refiners and some demand.” 

Oil has had a volatile August with the fast-spreading delta variant of the virus leading to renewed restrictions on mobility and clouding the outlook for fuel demand. OPEC+ is scheduled to meet next week, and market-watchers surveyed by Bloomberg expect it will ratify another monthly output increase as it revives supplies halted during the pandemic. 

With Ida heading for the U.S., West Texas Intermediate crude’s nearest timespread strengthened. That firming structure comes amid expectations of tighter supplies as production is shut in the Gulf of Mexico. The relative strength in U.S. crude has also narrowed its discount to the global Brent benchmark. 

Operators already shutting in production or in the process of doing so include BP Plc, Royal Dutch Shell Plc and Chevron Corp.

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