Oil and gasoline prices rise as Ida accelerates hurricane season

Oil and gasoline prices rise as Ida accelerates hurricane season

Residents of St. Bernard Parish fill their cars and gas cans as the Louisiana coast braces for Hurricane Ida in New Orleans on Friday, August 27, 2021.

Chris Granger | The Times-Picayune | AP. via The New Orleans Advocate

Hurricane Ida temporarily shut down a significant portion of U.S. oil production and refining operations, and is expected to keep retail crude and gasoline prices at already high levels.

As a tropical storm, Ida swept through the production area of ​​the Gulf of Mexico before hitting the Louisiana coast as a Category 4 hurricane, bringing torrents of rain, strong winds and high tides. More than a million Louisiana utility customers were without power as of Monday morning.

The energy industry was working on Monday to assess whether it could restore refining operations in Louisiana and oil and gas production in the Gulf of Mexico, which were taken offline as a precaution.

Oil prices were slightly higher on Monday after jumping 10% last week. However, West Texas Intermediate futures – which were trading at around $ 69 a barrel – are still down more than 6.5% for the month. Almost all of the Gulf of Mexico’s oil production has been shut down, accounting for about 15% of the US total.

“The response is mixed because we are avoiding the worst-case scenario,” said John Kilduff, recapitalized. “But supply is tight, and that could impact pricing, especially as we head into the peak hurricane season and weather concerns will persist in the market over the next few weeks. C was a little empty to get into it.

If no damage is found, operations in the Gulf of Mexico should resume their normal course. The storm hit supplies at the OPEC + meeting this week.

OPEC + should largely restore the production of 400,000 barrels per day that it had previously committed to put back on the market. The Biden administration had asked Saudi Arabia and OPEC to restore more supplies.

But the cartel and its allies, like Russia, are only expected to get oil back on the market in the quantities expected. “They’re not coming to save us $ 70 worth of oil,” Kilduff said.

Inventories of raw materials are at their lowest level since January 2020, according to data released last week by the Energy Information Administration. Crude oil supplies have fallen for three consecutive weeks, while demand for fuel has reached its highest level since March 2020.

price effect for labor day

Ida’s gasoline supply could also be temporarily affected, as refineries in the region are closed. The Colonial Pipeline – a major artery transporting gasoline from Houston to the south and northeast – has been partially closed. The company said the pipeline is expected to resume service later Monday. The terminals continued to deliver gasoline.

“Consumers shouldn’t expect gasoline prices to drop this week,” said Andrew Lipo, president of Lipo Oil Associates. Analysts expect gasoline prices to rise 5 cents to 10 cents a gallon by Labor Day weekend for some consumers, especially in the southern and eastern states -United.

According to AAA, the national average price of unleaded gasoline was $ 3.15 a gallon on Monday, a penny less than a week ago. The Labor Day weekend price is the highest in seven years and is up sharply from the price of $ 2.23 per gallon at the same time last year.

It is not known when refining operations will return to normal, as it can be difficult to get personnel back to the affected area.

“Almost everything is closed in the Baton Rouge area of ​​New Orleans, which accounts for 12.5% ​​of the country’s refining capacity,” Lipo said.

Lipo said Exxon Mobil is currently shutting down all of its refining operations in Baton Rouge, which represent 540,000 barrels per day. He said two other refineries are operational in Mississippi, but the area is under surveillance from tornadoes and flooding. Exxon Mobil said its Baton Rouge refineries were not damaged, but ceased operations to stabilize them.

Kinder Morgan’s Plantation pipeline, which also carries gasoline to the southeast, was operating on Monday, but its Baton Rouge terminal was without power. Lipo said the plantation carried gasoline from refineries in Louisiana, while Colonial also received oil from refineries in Texas.

“From what we’re hearing now, none of the features are causing serious physical damage, which is good news for consumers,” Kilduff said. But the industry is watching to see how soon operations will be restored and if the power outages will impact refineries.

“The electrical situation is the big unknown right now,” Kilduff said. If refineries are affected, it could mean that oil prices will rise even more.

The US Department of Energy said in its latest weekly figures that US gasoline demand is 9.57 million barrels per day. According to TortoiseEcofin, weekly demand for refined products peaked after another pandemic and a level not seen since August 2019. He said the top three weekly gasoline demand readings have taken place in recent weeks.

“This holiday weekend, if the trends continue, there could be an epic demand for gasoline,” Kilduff said.

Katrina’s memories

At the same time, due to the stagnation of economic activities due to Ida, the demand for oil declined. Tom Cloza, head of global energy research at the Oil Price Information Service, said he expects the loss of production from the Gulf of Mexico to have little impact.

“The reduction in demand from Ida is probably slightly larger than the loss from the Gulf of Mexico,” he said.

Analysts said Ida’s impact on energy prices had nothing to do with Katrina, which made landfall in Louisiana 16 years ago.

“The hurricane may draw parallels geographically, but the aftermath has a less similar impact on energy markets than Katrina,” wrote Michael Tran, RBC Commodities strategist. “Indeed, the historical rule of thumb has changed. Hurricanes are no longer bullish for oil prices. In fact, hurricanes can actually have long-lasting and medium-term bearish effects. “

At the time, the United States was producing only 5.2 million barrels per day and was responsible for 1.3 million barrels per day compared to 1.6 million barrels per day in the Gulf.

“Hurricane Katrina devastated offshore oil production on the US Gulf Coast in 2005, before the Shale Revolution, when offshore production accounted for a very large portion (around 25%) of total US production,” Tran said. .

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