Market Overview

Tropical Storm Barry Cuts Gulf Production, Threatens Refineries, Spikes Oil Prices

Tropical Storm Barry Cuts Gulf Production, Threatens Refineries, Spikes Oil Prices

A Gulf of Mexico tropical storm that's expected to develop into a hurricane by the weekend continued to send oil prices higher Thursday as rigs in the Gulf were evacuated. Refineries on shore were closely tracking the storm as it approached the Louisiana coast.

Rigs Evacuated, Hurricane Expected Saturday 

Oil prices spiked above $60 a barrel Wednesday as Tropical Storm Barry formed in the Gulf and continued to rise Thursday.

In addition to the storm, markets were reacting to a report that people on armed boats tried unsuccessfully to seize a British oil tanker in the Persian Gulf.

The price of oil was at its highest in seven weeks, with oil companies warning the storm could disrupt production at several refineries in the Gulf region, which was already seeing flooding from heavy rains.

Several major operators began evacuating rigs in the Gulf on Wednesday, halting about a third of production in the region as Tropical Storm Barry churned toward Louisiana, with forecasters saying it would likely be the first hurricane of the year by the weekend.

The Department of the Interior said Wednesday that 15 Gulf production platforms were evacuated, stopping the production of more than 600,000 barrels of oil a day — more than 30% of normal Gulf production. About 17% of U.S. crude oil output comes from the Gulf of Mexico.

The agency estimated that more than 17% of natural gas production in the Gulf is now offline because of the storm.

Onshore, flooding is a particular concern, with the storm moving very slowly and expected to dump large amounts of rain — possibly as much as 20 inches — over an already saturated area.

An immense thunderstorm caused severe flooding in New Orleans on Wednesday, and officials said the Mississippi River was likely to top levees in the area.

Royal Dutch Shell Plc (NYSE: RDS) operates refineries in Convent and Norco, Louisiana. Chevron Corporation (NYSE: CVX) has a refinery on the Gulf coast in Pascagoula, Mississippi and another in the region in Pasadena, Texas, near Houston.

The National Hurricane Center said Barry was expected to be a Category 1 hurricane by Friday or Saturday and hit Louisiana’s coast sometime later on Saturday.

Critics say the price of gasoline is overly sensitive to events like hurricanes because the country doesn't have enough refineries. 

Price Action

Shares of Royal Dutch Shell were volatile Thursday; the stock was trading down slightly at the time of publication at $65.20. 

Chevron stock was performing similarly, dropping sharply in early trading before gaining back some of the losses. The stock was down 0.25% at $125.13 at the time of publication. 

Related Links:

New Orleans May Face Daunting Tropical Storm, More Flooding This Week

As Oil Prices Jump, Energy Shares Help Fuel Market Rally

Photo by BoH/Wikimedia

Posted-In: Oil Tropical Storm BarryNews Commodities Top Stories Markets Best of Benzinga


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