Oil Rises for Second Day as Storm Hits Gulf, Algo Selling Slows

(Bloomberg) -- Oil gained for the second straight day after storm Francine disrupted crude production in the Gulf of Mexico and algorithm-driven traders took a break from sharp selling in recent sessions.

West Texas Intermediate rose more than 3% to top $69 a barrel while Brent advanced to trade above $72. Oil’s volatility has cooled amid the gains after hitting the highest in nine months on Tuesday.

Francine — which is now weakening from its previous hurricane force — had forced the shut-in of about 670,000 barrels a day in the Gulf of Mexico, the US Bureau of Safety and Environmental Enforcement said. That’s equivalent to more than a third of the region’s oil output.

Model-driven investors known as commodity-trading advisers also showed signs of letting up after days of heavy selling.

“We are not seeing selling in these markets, nor are there any meaningful orders close in Brent, WTI, and products,”said Stephen Roseme, managing member of Bridgeton Research Group LLC. “However, if the market were to resume a lower path, new selling will ultimately enter the market, but not in the nearby window.”

Daily price moves are also being heavily swayed options markets, which are holding more than 90 million barrels of Brent put options at $70 a barrel over the next 12 months. When prices fall below that level, traders who sold those contracts must sell futures to manage their risk, and as prices rally away from $70, they do the opposite.

Crude is still markedly lower this year, with steep declines spurred by the prospect of weakening demand in top importer China and signs of a slowdown in the US.

The International Energy Agency reinforced those concerns Thursday, saying global oil demand growth is slowing sharply as China’s economy cools. The organization sees a glut next year even if OPEC+ — which already has relaxed planned production curbs by two months — prolongs supply cuts.

“The market now needs to face the question of whether too much negativity has been priced in at current levels,” said Ole Hansen, head of commodities strategy at Saxo Bank. “The IEA was most certainly not that upbeat, basically confirming the slowdown is a China story for now. With the impact of Francine fading in the coming days, the market will still be left vulnerable to fresh selling attempts.”

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