Oil Prices are Rising as Producers Assess the Damage Caused by Hurricane Ida

While oil producers in the Gulf of Mexico have shut in roughly 1.7 million barrels of crude output per day ahead of the storm, refineries in the US state of Louisiana may take longer to reopen.

Oil rose in New York as offshore explorers assessed Hurricane Ida damage and investors shifted their attention to an OPEC+ meeting that might see more supply added to the market.

After plunging as much as 1.6 percent earlier, oil futures in New York were trading slightly over $69 a barrel. While Gulf of Mexico producers have shut down roughly 1.7 million barrels per day of crude production ahead of the storm, Louisiana refineries may take longer to reopen.

“The market is regarding the impact on crude production as minimal at this point from Ida unlike refining,” said Bart Melek, head of global commodity strategy at TD Securities. “This means less demand for feed as refiners have a reduced capacity, which could see crude scarcity worries go away.”

Gasoline futures spiked more than 4% earlier in the session before paring their advance. About 2.11 million barrels a day of refining capacity –about  12% of the U.S. total — was being shut or brought to reduced rates at plants along the Mississippi River on Sunday.

Image Source: AL JAZEERA

The reappearance of the pandemic in areas of Asia, the United States, and Europe has caused erratic trading in crude oil and gasoline this month, as investors considered the threat to consumption posed by the epidemic’s resurgence. Meanwhile, the Organization of Petroleum Exporting Countries (OPEC) and its allies are anticipated to increase output at their meeting later this week.

With lashing rain and strong winds, Hurricane Ida pounded New Orleans and the Louisiana shore overnight, knocking out power and threatening severe flooding. When the storm landed as a Category 4 hurricane on Sunday, it pushed a wall of water inland and rerouted section of the Mississippi River.

The Royal Dutch Shell Plc-operated Mars, Olympus, and Ursa crude and natural gas platforms remained on location after Hurricane Ida moved through the Gulf on Sunday afternoon, according to a flyover by the US Coast Guard.

“We expect a more rapid return of oil production than refining production in the region,” Goldman Sachs Group Inc. analysts wrote in a note Monday. It’s too early to determine how long refineries in the region will remain shut, they said.

Gasoline prices in the southeast United States might rise in the following weeks if refineries sustain significant damage or lose power, forcing them to close for a lengthy period of time, adding to the price inflation that Americans are experiencing.

Physical gasoline spot prices in Houston have risen to a nearly four-year high compared to New York futures.

Traders in Europe have already begun provisionally chartering tankers to fill potential supply gaps in New York Harbor.

Prices:

  • West Texas Intermediate crude for October delivery rose 50 cents at $69.24 a barrel at 1:34. p.m. in New York.
  • Brent crude for October settlement climbed 59 cents to $73.29 a barrel on ICE.
  • WTI fell to a $4.09-a-barrel below to its global benchmark Brent, the largest discount since May 2020.
  • September gasoline contract, which expires Tuesday, gained 1.7% to $2.3129 a gallon
  • October gasoline was up 1.5% at to $2.1513 a gallon.

Colonial Pipeline Co., the operator of the largest U.S. fuel-distribution system from the refining centers in Texas and Louisiana to customers across the eastern U.S., idled its main network.

“For a Category 4, you could be looking at four to six weeks or more of downtime for the refineries,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.

Ida, which came ashore about 60 miles (97 kilometers) south of New Orleans, drove up ocean levels as much as 16 feet (4.9 meters). The hurricane’s 150-mile-per-hour winds tie Louisiana’s record set by Laura in 2020 and a 19th century storm.

Related coverage:

  • Port of New Orleans remains closed to all vessel traffic, while ship pilots report damage at Valero Meraux refinery dock
  • Crescent Pilots reports damage at the Valero, Meraux dock
  • Oil and natural gas explorers in the Gulf of Mexico and Louisiana refineries have shut output as Hurricane Ida crashed ashore.
  • U.S. motorists who’d been expecting an end-of-summer relief for gasoline prices should start bracing for higher costs.
  • The head of Libya’s National Oil Corp. was suspended pending a probe into whether he violated policy, the oil minister said.

Source: AL JAZEERA

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