The U.S. oil benchmark rose modestly Tuesday, while gasoline futures rallied as storms forced the shutdown of more than 80% of offshore crude-oil production in the Gulf of Mexico and prompted refinery cuts.
West Texas Intermediate crude for October delivery was up 26 cents, or 0.6%, at $42.88 a barrel on the New York Mercantile Exchange. October Brent crude, the global benchmark, gained 53 cents, or 1.2%, to $45.66 a barrel on ICE Futures Europe.
Tropical Storm Marco made landfall Monday, but attention is focused on Laura, which was upgraded to a hurricane Tuesday morning and is expected to make landfall on the U.S. Gulf Coast later this week.
The Interior Department’s Bureau of Safety and Environmental Enforcement, citing operator reports, estimated late Monday that 82.4% of offshore oil production in the Gulf of Mexico had been shut in along with nearly 57% of natural-gas production.
A number of refineries on the Gulf Coast, where almost half of the U.S. oil processing industry is located, have also suspended production ahead of Laura’s expected landfall, noted Eugen Weinberg, analyst at Commerzbank. While the refineries were reinforced following Hurricane Katrina in 2005, there is still the risk of flooding, which could prompt extended closures. Storms can also affect the transportation of crude oil and exports.
It’s no surprise then that gasoline futures jumped 6.5% Monday in response to the storms, Weinberg said.
A widening premium for October gasoline relative to November indicates market participants fear the potential of shortages, analysts said.
October gasoline gained 1.5% to $1.2786 a gallon. October heating oil, meanwhile, rose 1.1% to $1.2779 a gallon.
October natural gas was up 0.6% at $2.633 per million British thermal units.