Hurricane Isaias is disrupting U.S. crude oil production in the Gulf of Mexico and could limit about 2% of the country’s refining capacity, at a time when fuel markets are already tight around the world.
Isaias is headed toward Mississippi, Alabama and the Florida Panhandle as a Category 3 storm with maximum sustained winds of 120 miles per hour, according to the National Hurricane Center, and is expected to make landfall Friday evening or early Saturday.
As of Thursday, oil companies had shut down about 1.3 million barrels per day, or about 63% of total U.S. production in the Gulf, according to the Bureau of Safety and Environmental Enforcement.
The hurricane appeared to be moving away from the dense refining region of southern Louisiana, near New Orleans and Baton Rouge.
But the storm could affect Chevron’s refinery in Pascagoula, Mississippi, and a Vertex Energy refinery in Saraland, Alabama. Both areas are under hurricane alert. The facilities can produce a total of 466,000 b/d, or 2.4% of U.S. refining capacity, said Andy Lipow, president of Lipow Oil Associates.
“Of course, losing all refining capacity while diesel supplies are at their lowest levels for this time of year since the EIA began reporting in 1982 is not a good thing,” Lipow wrote in a Friday memo, referring to the Energy Information Administration.
Chevron’s Pascagoula refinery remains operational, spokesman Ross Allen said Thursday. Vertex officials were not immediately available for comment on its Saraland refinery.
“The biggest risk for these two refineries is a loss of power or flood damage,” Lipow wrote in a note Friday. If the refineries shut down, it would take one to two weeks to restart them if they did not suffer damage, he said.
Gulf Coast refineries are operating at 95% capacity, so there is no slack in the system to make up for lost production, Lipow said.
Diesel prices have soared as wars in Eastern Europe and the Middle East destroyed refining capacity. Ukrainian strikes on Russian refineries forced Moscow to ban diesel exports. Iran and its Houthi allies have also attacked refineries in the Middle East.
U.S. refiners have stepped in to take advantage of high profit margins to export diesel around the world, particularly to Europe.
In the past, fuel prices have risen while crude prices have fallen during outages at Gulf refineries, said Kevin Book, managing director at ClearView Energy Partners. That’s because those refineries don’t demand crude and don’t produce fuel for consumers, Book told CNBC’s “Squawk Box” Thursday.
Lipow warned that tanker traffic would also be disrupted.
“Tankers will be slow to deliver crude oil to refineries while other tankers will be slow to load gasoline, jet fuel and diesel out of refineries,” the analyst said. “Florida will experience delays in receiving gasoline, jet fuel and diesel.”
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