Oil Market's Next Move Depends on Ida's Destruction - Barron's

A car driving through rain and high winds across Canal Street in New Orleans on Sunday.

Patrick T. Fallon/AFP/Getty Images

One of the largest storms in American history slammed into the Gulf Coast on Sunday, but the impact on oil and gas prices was relatively mild. That’s because investors had been anticipating a big move last week, and prices already spiked.

Now, the direction of prices will depend on how badly refineries and oil platforms in the Gulf region were damaged, and how long it takes them to get back up and running again.

On Monday morning, West Texas Intermediate crude, the U.S. benchmark, was up 0.1%, to $68.81 a barrel. WTI rose 10.6% last week. Gasoline prices were up 2% on Monday, after rising 12.4% last week.

The hurricane led to nearly all oil production in the Gulf of Mexico being shut down by Sunday, and a large portion of U.S. refining capacity, too. Nearly 4.4 million barrels of refining capacity, or about one-fourth of the county’s total capacity, is in the path of the storm and at least half of that had been shut in as of Sunday, according to S&P Global Platts.

Those refiners produce about 1.5 million barrels of gasoline a day, representing about 15% to 20% of the country’s capacity. The impact could be felt particularly hard in some regions of the U.S. About 60% of the gasoline used on the East Coast comes from the Gulf, noted Raymond James analyst Pavel Molchanov.

The big question now is how long it takes for the region to recover. If Hurricane Ida did not do major damage to the facilities, prices are likely to slump again. But if some are offline for an extended time, gasoline and oil could keep rising.

“While believe much of last week’s 10% prompt month oil price gain, 14% prompt month natural gas gain, and 12% prompt month gasoline were driven by expectations of Ida possibly resulting in minimal further near-term commodities upside unless it appears facilities may be down longer than expect,” wrote Truist analyst Neal Dingmann.

Among the Gulf of Mexico operators Dingmann is watching are Exxon Mobil (XOM), Chevron (CVX) Occidental Petroleum (OXY), and Murphy Oil (MUR). Shares of Exxon were down 0.6% in Monday morning trading, Chevron, down 0.3%, Occidental, down 0.4%. and Murphy, down 0.8%.

Absent some more major news, oil market traders are likely to shift their focus by midweek. The Organization of the Petroleum Exporting Countries is set to meet starting on Wednesday.

Write to Avi Salzman at avi.salzman@barrons.com

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