(Bloomberg) — U.S. gasoline futures jumped after Hurricane Ida barreled ashore in Louisiana, disrupting processing facilities, while oil failed to hold onto an early gain given local rigs may have escaped significant damage and the OPEC+ producers’ cartel is expected to endorse a supply increase.
Gasoline for October spiked more than 4% higher in New York before paring its advance, while West Texas Intermediate crude was little changed. Last week, WTI rallied 10% as investors wagered global demand would weather the setback posed by the spread of the delta coronavirus variant.
Both crude oil and gasoline have been hit by volatile trading this month as investors weighed the challenge to consumption posed by the delta variant. This week, traders will weigh the fall-out from Ida, as well as the likelihood that the Organization of Petroleum Exporting Countries and its allies will go ahead with an increase in output when they meet on Sept. 1. The impact from the hurricane will hinge on the actual damage to rigs and refining capacity, according to Vandana Hari, founder of energy consultancy Vanda Insights.
“If the offshore facilities have escaped damage — as they appear to have — the premium on account of the 1.7 million barrel a day crude production shut-in will evaporate,” said Hari. “Attention will then shift to the status of Louisiana refineries, which is more of a refined-products play,” she said.
Refiners including Valero Energy Corp. shut about 12% of U.S. oil-processing capacity as a precaution ahead of the Category 4 storm, which packed stronger winds than Katrina in 2005. Colonial Pipeline Co., the operator of the largest fuel-distribution system from the refining centers in Texas and Louisiana to customers across the eastern U.S., idled its main network.
Gasoline prices in the southeast U.S. could climb heading into the end of summer if refineries suffer extensive damage or can’t get power and are forced to stay shut for an extended period, adding to the price inflation hitting Americans. Traders in Europe have already been preparing to fill any gap in supplies at New York Harbor, provisionally chartering tankers. Still, those would take as much as two weeks to cross the Atlantic.
“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. As Ida approached, producers in the Gulf of Mexico shut in 1.74 million barrels a day of crude output, about 15% of the nation’s total.
Brent’s prompt timespread was $1 a barrel in backwardation, level with the figure on Friday and up from 92 cents a month ago. That’s a bullish pattern, with near-term prices above later-dated ones.
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