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Charles Kennedy

Charles Kennedy

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Gulf Of Mexico Oil Drillers Brace For Impact As Hurricane Nears

Tropical storm Laura has strengthened to a hurricane and is expected to grow further before striking the Gulf Coast as a Category 3 hurricane. The oil industry has evacuated 299 offshore platforms in the Gulf of Mexico so far and 11 drilling rigs, according to the Bureau of Safety and Environmental Enforcement.

Most of the oil and gas production in the Gulf has been shut in as a result. The oil output shut-in stands at 1.558 million bpd, or 84.3 percent of the total, and the gas output shut-in stands at 1.65 billion cu ft daily, or close to 61 percent of the total.

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 could use a boost. 

Meteorologists are warning of life-threatening storms and strong winds when the hurricane makes landfall either in Texas or Louisiana later today or on Thursday.

Oil prices have risen in response to the hurricane threat and will probably rise further as the threat grows graver, but the rally does not seem to be able to hold. The first boost to prices from the hurricane situation in the Gulf of Mexico came on Monday, but the price rise only lasted for a few hours before downward risk prevailed. Today, prices were also down in Asian trade after the Tuesday boost they got from the API’s inventory report that saw another large crude oil and gasoline draws.

Another rally ahead of Laura’s landfall in oil country is a certainty, and the more devastation it wreaks on the coast, the longer the rally will continue. However, oil production is set for a quick rebound as in every hurricane season, so unless the hurricane does severe damage to refining capacity, that rally will likely also be a temporary one only.

By Charles Kennedy for Oilprice.com

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