Hurricane Ida has slammed energy production on the US Gulf coast, causing the evacuation of more than half of the rigs in the Gulf of Mexico, according to the Bureau of Safety and Environmental Enforcement (BSEE).
Investors signalled the outages could drive up US petrol prices in the coming weeks, as the ability to turn crude oil into major byproducts will be severely limited by the aftermath of the hurricane, which was labelled a category 4 storm before being downgraded to a tropical storm.
US petrol prices rose by more than 3 per cent as investors tried to work out how long it would take to get major oil refineries running again.
The area accounts for 17 per cent of US crude oil production and 5 per cent of its natural gas, according to figures from the US energy information administration.
Crucially, it is responsible for refining 45 per cent of US petroleum, and processing 51 per cent of the country’s natural gas.
The hurricane, which was declared a major disaster by the US president, has left more than 1 million people without energy in Louisiana while a further almost 100,000 are facing outages in Mississippi.
But it is still too early to determine whether or not the impact from Ida will be as severe as Hurricane Katrina which hit the region 16 years ago.
BSEE and industry estimates suggested on Sunday that more than 90 per cent of gas and oil production in the Gulf of Mexico has been shut down.
And a sense of uncertainty among commodity investors was underscored by early divergence in oil prices and refined products on Monday after major oil benchmarks had climbed 10 per cent last week, ahead of Ida’s landfall.
While petrol crude oil prices often correlate, a gap between the amount of oil extracted and the ability to turn it into the petrol byproduct can temporarily change that relationship as investors try to figure out the long-term impacts of a hurricane.
US petrol and heating futures rose on Monday, but prices for US crude oil wavered ahead of US market open, while Brent crude, a global oil benchmark, ticked lower.
There are other factors at play too.
The Opec cartel of oil producers is expected to agree to increase oil supply on Wednesday, dampening price rises. Meanwhile, Jerome Powell, head of the US Federal Reserve avoided saying – as some investors had feared – that the central bank’s efforts to support the economy by buying bonds would be tapered imminently.
Instead, at last week’s Jackson Hole symposium, he noted that positive economic signals had to be set against “the further spread of the Delta variant”, indicating that tapering efforts might come later in this year.
And while the oil price rises ahead of Ida’s landfall were “nothing new”, according to Craig Erlam, senior market analyst at foreign exchange company Oanda, “every hurricane is different and brings uncertainty for the region that contributes heavily to US output”.
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies