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Mexican oil rig outage and vaccine approval boosts oil 3% further

mexican oil rig

The Mexican oil rig outage, as well as the approval from the U.S. Food and Drug Administration of the Pfizer vaccine against the coronavirus has boosted oil prices 3% further. As we reported previously, oil prices endured seven-week straight losses, only starting its gain this Monday.

Firstly, as we reported this Monday, on Sunday, August 22, there was a tragedy off the coasts of Campeche, in Mexico. The E-Ku-A2 well, from the production asset Ku-Maloob-Zaap (KMZ), located on the Campeche portion of the Gulf of Mexico, caught fire.

Secondly, the mexican oil rig fire killed around 5 people and left many injured and missing personnel, from services companies related to Petroleos Mexicanos, Pemex. Although the fire was under control after a few hours, the damage to the oil rig in Mexico was huge.

In fact, Mexican authorities said they would have to take the assets off operations, freezing almost 25% of Pemex’s oil production. Indeed, the fire halted around 421,000 barrels per day of production.

Thirdly, both these factors played in favor of oil prices in the Tuesday session; as Reuters reports, Brent crude oil futures settled up $2.30, or 3.4%, at $71.05 a barrel; while U.S. West Texas Intermediate (WTI) gained $1.90, or 2.9%, to settle at $67.54.

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Mexican oil rig outage gives the market the chance to not over supply

Moreover, after today’s gain, oil prices are up 8%, clawing back the 7.6% lost last week, the biggest weekly decline in more than nine months.

On the one hand, the vaccine approval is giving the market a bit of certainty about oil demand; according to analysts, China is reaching success, apparently, in fighting Delta, the virus’ new variant. This would mean that no further mobility restriction will be required, which prompts oil demand.

In this regard, Gary Cunningham, director of market research at Tradition Energy in Stamford, Connecticut, said. “Concerns are easing that we will not see a global shutdown due to the Delta variant.”

On the other hand, the tragedy in Mexico, as dramatic as it might be, it gives the market an opportunity to avoid over supply. The stalled production from Pemex will give the global oil market a breath of air; specially after OPEC’s decision to boost its production, despite the warning signs from rising covid infections and thus mobility restrictions.

Finally, Bob Yawger, director of energy futures at Mizuho in New York, said. “The market is getting a tailwind from the PEMEX fire; which has greenlighted this rally.” However, he cautioned that the market could reverse course if U.S. government data on Wednesday shows gasoline inventories increased. Analysts polled by Reuters expect gasoline inventories to fall, but Yawger expects a gain, which could signal a demand lull.

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