Oil prices climb as hurricane Zeta shuts US output

Oil prices rose in early trading on Thursday, regaining some of the ground lost in a five per cent slump overnight, amid the prospect of tighter short-term supply with two-thirds of US output shut in the Gulf of Mexico as Hurricane Zeta slammed Louisiana.

US West Texas Intermediate (WTI) crude futures rose 29 cents, or 0.8 per cent, to $37.68 a barrel at 0120 GMT, while Brent crude futures rose 25 cents, or 0.6 per cent, to $39.37 a barrel.

Signs of a growing global supply glut and a second wave in the coronavirus pandemic sent prices tumbling in the previous session, but market watchers said technical support levels were a factor in trading on Thursday.

"The increase in volatility is attractive to traders. That proximity to the $37 support is one of the factors at play today," said Michael McCarthy, chief market strategist at CMC Markets and Stockbroking.

WTI in the $36.45 to $36.95 range has proven to be a "buy zone" since the beginning of September, Axi chief market strategist Stephen Innes said. If the market fell through that, it would be a bearish sign, he said.

Hurricane Zeta's impact is expected to be short-lived and the return of US production will add to oil oversupply, as Libya rapidly ramps up output after an eight-month blockade and soaring Covid-19 cases in the United States and Europe lead to new restrictions keeping people off the roads.

Data from the US Energy Information Administration on Wednesday provided evidence of the growing glut: US crude stockpiles rose by 4.3 million barrels in the week to October 23, a much bigger increase than expected.

"It's been blow after blow for the outlook for crude. Whether it's on the supply side with Libya coming back on line, or lack of discipline in OPEC+, or new lockdowns in Germany and France as we speak, they all further sour the outlook," said strategist McCarthy.

France will require people to stay home for all but essential activities as of Friday, while Germany will shut bars, restaurants and theatres from November 2 through the end of the month to stop the spread of the coronavirus.

"The pandemic's resurgence is putting pressure on OPEC to delay its planned production hike in January," ANZ Research said in a note.

The Organization of the Petroleum Exporting Countries and allies, together called OPEC+, plan on tapering their production cuts in January 2021 from a current 7.7 million barrels per day (bpd) to around 5.7 million bpd.