Platform shut-ins in the Gulf of Mexico have reached 82.4 percent of oil production, the Bureau of Safety and Environmental Enforcement reported, with 56.92 percent of gas production also shut in ahead of two tropical storms heading that way.
Some 281 offshore platforms have been evacuated as storms Marco and Laura make their way through the Gulf. According to the latest update from the National Hurricane Center, storm Marco has begun to weaken while Maura is growing stronger. Marco has therefore been downgraded to a tropical depression, expected to dissipate by tomorrow. Laura, on the other hand, has the potential to grow into a hurricane, possibly a Category 2.
Refiners on the Gulf Coast are also preparing for a hurricane, Bloomberg reported Monday, with some shuttering processing units, securing equipment, or checking their emergency protocols. The shut-ins could lead to a cut of some 1 million bpd in processing capacity at a time when fuel prices definitely need a boost. Gasoline is up 1 percent as a result of this latest news.
Yet oil prices have been reluctant to climb higher for more than a few hours. In fact, after a brief jump, West Texas Intermediate was down again in Asian trade on Tuesday.
"Due to the moribund demand for gasoline and diesel fuels these days, due to the pandemic, it is hard to get a rally going off this remarkable dual-storm threat, which itself is remarkable," John Kilduff from Again Capital told CNBC on Monday.
"Given that both storms appear modest based on current forecasts we see lower potential for a sustainable impact on crude ... We expect the elevated storm activity to offer modest but short lived support for both oil prices and refining margins," BofA analyst Doug Leggate chimed in.
The amount of shut-in production and refining capacity is bound to lift prices further, but just how long the rally will last remains an open question, at least until Marco dissipates and Laura makes landfall.
By Charles Kennedy for Oilprice.com
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