Oil and gasoline prices rise as Ida puts hurricane season at a higher pace

Hurricane Ida temporarily closed a critical area of ​​U.S. oil refining and production operations, which should keep crude and retail gasoline prices at already high levels.

Now, a tropical storm, Ida swept the production area of ​​the Gulf of Mexico before falling off the coast of Louisiana on Sunday as a Category 4 storm, causing torrents of rain, strong winds and high tide. More than a million Louisiana utility customers were without electricity early Monday.

The energy industry was working Monday to assess when it could restore refining operations across Louisiana and oil and gas production in the Gulf of Mexico, which were shut down as a precautionary measure.

Oil prices were slightly higher on Monday after jumping 10% last week. However, West Texas intermediate futures (which were trading at about $ 69 a barrel) continue to fall above 6.5% during the month. Almost all of the Gulf of Mexico’s oil production closed, accounting for about 15 percent of the U.S. total.

“The reaction is mixed because we have avoided the worst of cases,” John Kilduff Capital said again. “But supplies are down and that could affect prices, especially as we enter the peak period because of storms and weather concerns will persist in the market over the next few weeks. As for supply, the closet was a bit bare going into that “.

Closed operations in the Gulf of Mexico should return to normal if no damage is detected. The impact of hurricane supplies comes when OPEC + meets this week.

OPEC + is expected to restore the 400,000 barrels per day of production it had previously pledged to return to the market. The Biden administration had called on Saudi Arabia and OPEC to restore more supplies.

But the cartel and its partners, such as Russia, are expected to restore only the expected amount of oil to the market. “They’re not going to come to our rescue from the $ 70 oil,” Kilduff said.

Crude inventories are at their lowest level since January 2020. Crude supply has fallen for three weeks in a row, while fuel demand has reached its highest level since March 2020, according to data published last week by the Energy Information Administration.

Ida could also temporarily affect gasoline supplies, with refineries closed throughout the region. The colonial pipeline, a key artery carrying gasoline from Houston, south to northeast, was partially shut down. The company said it expected the pipeline to resume service later Monday, pending restart protocols, according to Reuters. The terminals continued to distribute gasoline.

“Consumers shouldn’t expect gasoline prices to go down this week,” said Lipow Oil Associates president Andrew Lipow. Analysts expect gasoline prices to rise from 5 cents to 10 cents per gallon on Labor Day weekend for some consumers, particularly in the southern and eastern U.S.

The national average price of unleaded gasoline was $ 3.15 per gallon on Monday, down one cent from a week earlier, according to AAA. The price is the highest during a Labor Day weekend in seven years and has risen sharply from $ 2.23 per gallon at this time last year.

It is unclear when refining operations will be restored to normal, as it can be difficult to move staff to the affected area.

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

Lipow said Exxon Mobil is currently closing all of its refining operation at Baton Rouge, which is responsible for 540,000 barrels a day. Two other refineries in Mississippi remain operational, but the area is under surveillance for tornadoes and flooding, he said. Exxon Mobil said its Baton Rouge refinery was not harmed, but is closing operations to stabilize them.

Kinder Morgan’s Plantation pipeline, which also transports gasoline from the southeast, was operating on Monday, but the Baton Rouge terminal had no electricity. Lipow said Plantation transports gasoline from Louisiana refineries, while Colonial also receives oil from Texas refineries.

“As we hear now, no facility appears to have serious physical damage, which is good news for consumers,” Kilduff said. But the industry is looking to see how soon operations will be restored and whether refineries will be affected by power outages.

“The electrical situation is now the big unknown,” Kilduff said. If refineries are affected, this could mean that gasoline prices would rise further.

Demand for gasoline in the U.S. was 9.57 million barrels a day, the Department of Energy reported in its most recent weekly data. According to TortoiseEcofin, weekly demand for refined products reached another post-pandemic peak and a level not seen since August 2019. The first three weekly readings of gasoline demand have been in recent weeks, he said. .

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

At the same time, the cessation of economic activity due to Ida has led to a loss of oil demand. Tom Kloza, global head of energy research at the Oil Price Information Service, said he expects the loss of production in the Gulf of Mexico to have little impact.

“The destruction of Ida’s demand is probably a little more significant than the lost production that will accumulate in the Gulf of Mexico,” he said.

Analysts said the impact of Ida on energy prices was nothing like that of Katrina, which touched down in Louisiana 16 years ago.

“The storm may draw similarities from a geographic perspective, but the sequel has a less than similar impact on energy markets than Katrina,” wrote RBC commodity strategist Michael Tran. “In fact, historical rules have changed. Hurricanes are no longer bullish for the price of oil. In fact, storms can have more lasting bearish ramifications in the medium term.”

At the time, the U.S. produced only 5.2 million barrels a day and the Gulf was responsible for 1.3 million barrels a day, compared to 1.6 million barrels a day.

“Hurricane Katrina devastated offshore oil production on the U.S. Gulf Coast in 2005, before the shale revolution, when offshore production comprised a much larger portion (nearly 25%) of total production. of the U.S., ”Tran noted.