U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are inching lower shortly after the New York opening on Monday after giving up earlier gains which drove the market into a four-week high.
The price action suggests investors are still assessing the impact of Hurricane Ida that forced the shutdowns of U.S. Gulf oil production. Nearly all offshore Gulf oil production, or 1.74 million barrels per day, was suspended in advance of the storm, which has now weakened.
Hurricane Ida Whacks US Oil Production, Gasoline Supplies Threatened
Hurricane Ida’s pummeling of U.S. Gulf Coast energy suppliers is creating a two-sided situation that could pressure crude oil prices while driving fuel prices sharply higher. According to Reuters, the hurricane knocked out most of the region’s offshore wells, nearly half its motor fuel production and closing energy-export ports. That’s a mixture of both potentially bullish and bearish news.
On the potentially bullish side, the storm moved into Mississippi on Monday after leaving a trail of destruction in Louisiana and rampaging through U.S. offshore oil and gas fields. Hundreds of oil production platforms were evacuated. Lower crude oil production is potentially bullish if it leads to a drop in supply.
However, there are also potentially bearish developments too. More than 1.3 million homes and businesses in Louisiana and Mississippi were without power. This means lower demand for fuel since fewer people are driving to work. Homeowners can’t run appliances either including air conditioners, stoves, refrigerators, washing machines and dryers so there is lower demand for energy.
With production facilities shut down, crude oil prices are likely to fall and gasoline prices are likely to rise. According to GasBuddy, production losses – including at six Gulf Coast refineries – will lift retail gasoline prices by 5 to 10 cents a gallon.
Colonial Pipeline, the largest U.S. fuel pipeline network, halted motor fuel deliveries from Houston to Greensboro, North Carolina. A spokesman on Monday did not say when it expects to resume full operations. Its lines supply nearly half the gasoline used along the U.S. East Coast and an extended May shutdown led to fuel shortages.
Oil companies on Monday are beginning damage surveys of offshore platforms before taking crews back and restoring any output. This means crude oil prices could be capped for a day or more, while gasoline prices will remain underpinned and could continue to soar until the Colonial Pipeline is reopened.