The strongest hurricane ever to hit Louisiana has done some major damage, causing massive power outages and refinery shutdowns. The storm hit 95% of crude oil production in the Gulf of Mexico and shut down over 95% of natural gas production. On the opening we saw gasoline prices spike as much as $0.10 higher a gallon, but fell back to only three cents a gallon higher. The market is trying to determine the extent of the damage to the refineries.
The Colonial pipeline was shut down, numbers one and two. There is a lot of concern that there could be pipelines under the Gulf of Mexico that were buried in silt because of the strength of the storm. The market seems rather optimistic at this point that the damage isn’t going to be that bad, but it may take hours or days before we know for sure.
The biggest issue right now seems to be with gasoline and diesel fuel. With these refineries being shut down and the Colonial pipeline shuttered, those supplies to different parts of the country could be delayed. We may have to rely on imports of gasoline and diesel in the coming weeks, but they could be weeks away before that gas hits our shores.
Retail gasoline prices have seen a slight increase thus far, but it’s not as bad as it could have been. It is also not as bad as it’s going to get. I expect that we’ll find some more damage to refineries that could be shut down for weeks. That means that we could see these gasoline prices start to edge back up. It’s going to be touch and go here. I will try to keep you updated and anybody who needs specific information on what’s going on, call me for the latest at 888-264-5665.
The other big drama for the crude oil market is the OPEC plus meeting. It looks like the group will raise production and continue along their path of increasing production by 400,000 barrels a day beginning in September. That is the latest from three OPEC plus sources. Some waited to drop some hints that there was some talk from Kuwait that the production increase could be delayed. Right now there is no evidence that other members of the group want to go along with that. On top of that, it could be a tough sell especially in the aftermath of the storm.
LNG prices in Europe hit all-time highs on the storm. Natural gas prices here might get hit by power outages.
Right now I think with oil and natural gas and gasoline it’s going to be touch and go. Our expectations are that the products are going to stay strong right now. There is talk that the Biden administration is going to release some oil from the strategic petroleum reserve which isn’t going to help with the refineries that are shut down offshore in the Gulf of Mexico.
There were reports of the Mars platform floating in the Gulf of Mexico that turned out not to be true from what we understand but there’s still a lot of concern about how quickly we can get things back online. Usually after a storm like this, the Gulf of Mexico platforms come on pretty quickly. Drilling rigs start to come back as well. That’s the market’s assumption right now and we will go with that assumption until we hear any differently.