Two storms are barreling toward the Gulf Coast forcing a shutdown in oil operations, but the muted reaction in oil prices demonstrates just how closely the market is tied to a global recovery from Covid-19.
"Due to the moribund demand for gasoline and diesel fuels these days, due to the pandemic, it is hard to get a rally going off this remarkable dual-storm threat, which itself is remarkable," Again Capital's John Kilduff told CNBC.
Marco, which is expected to make landfall first, has weakened as it approaches the coast and was downgraded to a tropical storm on Sunday night. The other storm Laura, however, is strengthening and "could be more menacing," according to Kilduff.
"Given that both storms appear modest based on current forecasts we see lower potential for a sustainable impact on crude ... We expect the elevated storm activity to offer modest but short lived support for both oil prices and refining margins," added Bank of America's Doug Leggate.
As of Sunday, about 57.6% of offshore oil production in the Gulf of Mexico had been shut-in, or roughly 1.07 million barrels per day, according to the U.S. government.
The primary driving force for oil prices continues to be the unprecedented fall-off in demand caused by the coronavirus pandemic, as well as worldwide producers' response to the plunge in prices.
"Today is more of an opportunity to see that even such a sudden event is weak to really put aside the concerns that Covid-19 has brought upon market participants," said Bjornar Tonhaugen, Rystad Energy's head of oil markets. "Yes, a dip in oil production provides a breath to traders, who have been seeing global output rising over the last weeks, amid a demand recovery lag. But what will really make a difference is news from the recovery front," he added.
Henry Hub natural gas futures also got a boost on Monday with the contract for September delivery advancing 3.64% to $2.53 per million British thermal units. About 44.6% of natural gas production in the Gulf of Mexico is currently offline, which has helped fuel the jump in prices. But Brian Lovern, chief meteorologist at Bespoke Weather Services, noted that the boost could be short-lived.
"The other side of the storm is that it looks like it will be heading toward Sabine Pass and/or Cameron, [Louisiana], which means it will have a detrimental impact on LNG volumes as well in the coming days, and wherever the storm makes landfall, there will be demand destruction via rain and power outages, and this will be very significant if the storm tracks far enough westward to impact the Houston/Galveston region," he said.
Gasoline futures gained 5.86% on Monday to trade at $1.36, the highest level since March 6.
- CNBC's Michael Bloom contributed reporting.