Hurricane Delta is expected to make landfall, and it is unclear whether the storm will hit as a category two or three storm.
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What is clear, however, is the storm is playing a part in increasing oil prices and depending on how hard it hits it could impact some of the same refineries damaged by Hurricane Laura.
Jim Venissat, who’s camp was destroyed by Hurricane Laura, walks amid the devastation in Holly Beach, La., Saturday, Aug. 29, 2020. (AP Photo/Gerald Herbert)
The storm could also create demand destruction. The stronger the storm, the more worries about refinery wreckage and a potential drop in refinery crude demand. At the same time, a potential squeeze on gasoline is of concern as that market is already tightening as demand rounds from the coronavirus pandemic.
The energy industry has already shut down as of Thursday, 91% of Gulf of Mexico oil production, and 61% of natural gas production. Oil prices rallied over 9% for the week, snapping a 14-day losing streak.
TickerSecurityLastChangeChange %USOUNITED STATES OIL FUND L.P.28.69-0.45-1.54%UNGUNITED STATES NATURAL GAS FUND LP UNIT (POST REV SPLIT)12.38+0.52+4.38%XLEENERGY SELECT SECTOR SPDR ETF30.79-0.50-1.60%
What makes this storm even more distressing to refinery row is the region is still reeling from Hurricane Laura months ago. Laura shut 13% or 700,000 barrels a day of U.S. refining capacity, yet the impact on gasoline prices was muted. Yet because demand was still weak due to COVID-19, that monster storm barely moved the gas price needle.
Now that story is different. Because of improving demand and refinery issues, inventories are on the verge of falling below the average range for this time of year. That means that gasoline prices will be more sensitive to disruptions to supply. Hurricane Laura spared the refineries from worst-case scenario damage but it did enough damage to restrict supply.
If these storms take a refinery offline, gas prices will most likely rise for the average consumer. After Hurricane Laura, drivers didn't see a price bump, but with Hurricane Delta, motorists may not get off so easily at the gas pump.
Phil Flynn is senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at [email protected].