Oil took a breather on Monday after hitting four-week highs as Hurricane Ida weakened into a tropical storm after forcing oil production in the Gulf of Mexico to shut down. Even so, gasoline prices continued to climb, putting greater pressure on the US consumer, who is already suffering the impact of inflationary pressures.
Ida hit Louisiana on Sunday, causing massive flooding and cutting power to more than a million families. Early estimates point to the damage exceeding $ 40 billion, which would place it among the 10 costliest storms in the United States.
At the same time, almost 96% of the oil operators in the Gulf of Mexico remain closed. In this way, around 1.7 million barrels of crude oil, 94% of natural gas production and around 12% of the national oil refining capacity have been affected by the trajectory of the tropical storm.
Gasoline on the rise
It should be recalled that during the hit of Hurricane Katrina in August 2005, the supply was reduced by up to 1.53 million barrels per day. Production interruptions lasted for months due to damage to rigs and refineries. Last year, Hurricane Delta slowed production of up to 1.69 million barrels a day.
While crude fell on Monday on expectations of a rapid recovery in supply, US gasoline rose nearly 2% as power outages added to shoreline refinery closures and operators weighed the possibility that the interruptions are prolonged. At least six refineries in the New Orleans area, notably PBF, Phillips, Shell, Marathon, and two Valero facilities remained non-operational.
“The spikes in prices at the pumps due to the effects of the storm could be brief but dramatic. In addition, the trips of the next weekend of Labor Day could raise prices based on demand,” they warned in a statement. from the American Automobile Association. Prices could rise by about ten cents per gallon (3.1 liters) over the next four to five days in markets in the southeast and central parts of the country. On Monday the cost per gallon stood at $ 3.15.
The worst rise in a week in the last 30 years came after the Katrina scourge. At the time, the median price of a gallon of regular gasoline soared 46 cents, or 18%, to $ 3.07 a gallon, according to data from the Energy Information Administration (EIA). It took two months for gasoline prices to return to previous levels. But this was an extreme case. In 2005, many refineries in the region flooded and were without power for months.
Hurricane Ida made landfall at a key point for the oil industry as it affects the main pipelines that carry fuel from the Gulf Coast to the East Coast markets. Colonial Pipeline, the main fuel artery from Houston and the East Coast, temporarily closed its lines 1 and 2 systems from Houston to Greensboro, North Carolina. Still, the rest of the network from North Carolina to New Jersey was functioning normally at press time.
The six refineries previously mentioned represent around 1.7 million barrels per day of refining capacity, which represents 9% of the country’s total. The rest of the refineries in the region (Exxon, Placid and Kratz Springs), located in Baton Rouge, continued to operate at reduced levels. This trio refines some 700,000 barrels a day, approximately 3.5% of the country’s daily consumption. According to experts, some refineries could see four to six weeks of downtime.
Gasoline prices have already skyrocketed in the US almost 80% from their lowest point in April 2020, when economic activity came to a standstill due to the pandemic. But in the months that followed, the Americans were back on the roads. In fact, prices have risen 41% since last August.
Gasoline prices in the US have already risen 41% from a year ago
The impact of Ida and its repercussions on Americans’ portfolios could lower economic growth forecasts by a few tenths of the current third quarter, according to Moody’s Analytics chief economist Mark Zandi. Of course, this loss could be reversed in the last quarter of this year as a result of the reconstruction of the damage caused by the tropical storm.