Hurricane Ida hits US oil supply and refining capacity

Hurricane Ida has curtailed US oil supply by some 1.8mn b/d in the Gulf of Mexico, which currently has a peak production capacity of 1.9mn b/d, according to an initial analysis by Rystad Energy of the hurricane’s impact. Based on reported power outages and the closure of refineries in preparation for the storm, nearly 2mn b/d of US Gulf Coast refining capacity is estimated to be currently offline.

Rystad Energy estimates the cumulative production outage impact to be equivalent to 5.5 days of maximum capacity, assuming rapid reactivation to start as soon as 31 August and 1 September. This will result in an impact of approximately 215,000 b/d and 127,000 b/d on monthly averages for August and September, respectively. However, a certain downside supply risk is present, relating both to additional weather disruptions as the country remains in the middle of hurricane season and to delayed reactivation of some facilities, warns the market analyst.

When it comes to onshore oil supply, Rystad Energy sees marginal impact on conventional legacy oil volumes in Louisiana and Mississippi. With Ida being downgraded to Category 1 shortly after landfall, the likelihood of prolonged upstream disruptions in the area has diminished, it says. However, up to 120,000 b/d of onshore oil production in the US was shut-in prior to the hurricane striking, which will likely result in an impact of between 11,000 and 18,000 b/d on monthly averages for August and September, respectively.

On the trade flows side, the US Energy Information Administration (EIA) reported that a number of ports capable of receiving petroleum products had been closed – Baton Rouge, Gramercy, New Orleans, Morgan City and Lake Charles ports in Louisiana; Pascagoula in Mississippi; and Mobile in Alabama. Louisiana Offshore Oil Port (LOOP) also suspended operations at its marine terminal. In addition, Rystad Energy estimates that around 13mn barrels of crude oil is awaiting to offload in the US Gulf Coast region.

Based on reported power outages and the closure of refineries in preparation for the storm, nearly 2mn b/d of US Gulf Coast refining capacity went offline due to Hurricane Ida. The monthly impact in August on Gulf Coast refining capacity is forecast to be around 160,000 b/d, and on runs around 150,000 b/d (due to utilisation rates), but the monthly impact in September capacity could rise to around 640,000mn b/d based on power availability and the repairs required.

‘We see a risk that the loss of US refinery demand will be greater and more prolonged than the loss of crude supply, which, depending on the extent of refinery shut-ins and power outages, could further weaken the flat price, the structure for WTI and potentially WTI-Brent further for both September and possibly October 2021,’ comments Bjornar Tonhaugen, Head of Oil Markets, Rystad Energy.