US gasoline jumps, oil stable as Hurricane Ida hits

(Bloomberg) — US gasoline futures jumped and oil remained stable after Hurricane Ida made landfall in Louisiana and disrupted energy supplies in the world’s largest economy at a time of rising commodity prices.

Gasoline for October peaked more than 4% higher in New York before profits dipped, while West Texas Intermediate crude changed little. Last week, the WTI rose 10% as investors assumed global demand would weather the adversity of the spread of the delta coronavirus variant.

Both crude oil and gasoline were hit by volatile trading this month as investors weighed the challenge to consumption posed by the delta variant. This week, traders will weigh the ramifications of Ida, as well as the likelihood that the Organization of the Petroleum Exporting Countries and its allies will continue to increase output when it meets on Sept. 1. The hurricane’s impact would hinge on the actual damage to oil rigs and refining capacity, according to Vandana Hari, founder of energy consultancy Vanda Insights.

“If the offshore installations have not suffered damage – as they appear to have – the premium due to the cessation of crude oil production of 1.7 million barrels per day will evaporate,” Hari said. “The focus will then shift to Louisiana refinery status, which is more of a refined products game,” she said.

Refineries, including Valero Energy Corp., shut down about 12% of U.S. oil processing capacity as a precaution for the Category 4 storm, which blowed harder than Katrina in 2005. Colonial Pipeline Co., the operator of the largest fuel distribution system from the Texas and Louisiana refineries to customers in the eastern US, shut down its main network.

Gasoline prices in the southeastern US could soar towards the end of the summer if refineries suffer major damage or are unable to receive power and are forced to remain closed for an extended period, further hurting Americans. Traders in Europe have already prepared to fill any supply gaps to the Port of New York by provisionally chartering tankers. Still, it would take them two weeks to cross the Atlantic.

“For a Category 4, you could look at four to six weeks or more of downtime for the refineries,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.

Landing about 60 miles south of New Orleans, Ida pushed ocean levels up to 4.9 meters. The hurricane’s 250-mph winds match Laura’s 2020 record and a 19th-century storm. As Ida approached, producers in the Gulf of Mexico were shutting down 1.74 million barrels of crude oil per day, about 15% of the country’s total.

Brent’s fast time spread was $1 a barrel in backwardation, equaling Friday’s figure and up from 92 cents a month ago. That’s a bullish pattern, with near-term prices above later dates.

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