Oil prices soar as US producers shut down ahead of Hurricane Ida

Oil Rig – Alamy

More than 90 percent of US oil production in the Gulf of Mexico has been shut down Hurricane Ida landed tonight and threatens to drive up petrol prices even further.

The Category 4 hurricane threatens to cause serious damage to the region’s oil and gas industry as thousands of residents were forced to evacuate and flights grounded. Analysts warned that Ida was on the same path as other storms that previously caused massive damage to oil rigs.

Oil prices recorded their biggest weekly rally in more than a year as the hurricane swept toward the US coast last week, with Brent oil gaining 10 pc and reaching nearly $73 a barrel.

The storm could put more upward pressure on gasoline prices, which are already at their highest level in eight years. According to the RAC, prices at UK service stations have risen by 18 cents a liter over the past eight months as the oil market recovered.

Louisiana Governor John Bel Edwards warned this weekend that Ida will be one of the strongest hurricanes to hit the southern state since the 1850s.

According to the US Bureau of Safety and Environmental Enforcement, Ida caused more production cuts than Hurricane Katrina with 1.65 million barrels of crude oil per day. That equates to 91 percent of US Gulf crude production, while oil refining capacity of nearly 4.4 million barrels per day is also in the storm’s path.

“Many factories have been toughened up to hurricanes, but disruptions to operations are still highly likely due to flooding, power outages and workforce disruption,” analysts at S&P Global Platts Analytics said.

“Hurricane Ida is expected to make landfall along the same path as other storms that have wreaked havoc on US Gulf Coast refining and petrochemical facilities.”

Raghuram Rajan - REUTERS

Raghuram Rajan – REUTERS

The storm intensified as it headed toward the U.S. coast yesterday and was expected to hit the city of New Orleans on the 16th anniversary of devastating Hurricane Katrina. Category 4 hurricanes have wind speeds of at least 130 miles per hour.

As higher energy costs contribute to rising inflationary pressures, top economist Raghuram Rajan sounded the alarm rising prices in the UK.

The former governor of the Reserve Bank of India told the Post on Sunday: “Businesses have been uncomfortable with raising their prices for a while and we’ve had some temporary price increases.

“But they can become stubborn when the transition [out of the pandemic] long enough.”

Mr Rajan, once a candidate to replace Mark Carney at the Bank of England, said companies will increase costs “if there is a decent amount of demand and it is not suppressed by rising prices”.

Inflation fears have been fueled by rapidly rising prices around the world, as post-lockdown demand picks up and supply chain disruptions bite.

Many companies suffer from serious shortages of materials, which causes the costs for many goods to rise enormously. Major central banks have argued that price pressures will be transient, but markets have pushed forward their expectations of rate hikes to fight inflation.