Oil prices climbed Tuesday as Hurricane Sally bore down on the Mississippi coast as a Category 1 storm.
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West Texas Intermediate crude oil was trading up 60 cents at $37.86 per barrel while RBOB Gasoline edged up 0.82 cents to $1.115 per gallon.
“Hurricane Sally is a powerful slow-moving storm that can prove to be a nightmare for the U.S. energy Infrastructure,” Phil Flynn, a Chicago-based senior market analyst at the Price Futures Group, told FOX Business.
Hurricane Sally, which has sustained winds of 85 miles per hour, down from 110 miles per hour, is expected to make landfall in the area east of Gulfport, Miss.
Sally’s path is similar to that of Hurricane Laura, which hit Louisiana as a Category 4 storm last month and took about 80% of U.S. production offline.
In preparation for the storm, U.S. refineries and offshore production facilities have begun shutting down.
Phillips 66 Co. on Monday shut its 255,600 barrel per day refinery in Alliance, La., while Chevron Corp. and Royal Dutch Shell plc were among the companies that idled facilities in the Gulf of Mexico. About 16% of U.S. refinery capacity, or about 3.1 million barrels per day, are in the path of the storm.
“The possibility of damaging flash floods will put pipelines and refineries in jeopardy and of course will also stop imports and exports in the Gulf Of Mexico,” Flynn said.
A refinery takes one to two weeks to return to full capacity so long as there is no flooding nor power outages.
U.S. gasoline and diesel inventories are well stocked ahead of the storm due to the demand destruction caused by lockdowns aimed at slowing the spread of COVID-19.
Gasoline inventories are up 1% to 2% from a year ago while diesel stockpiles are higher by 30%, according to Andrew Lipow, president of the Houston-based oil consulting firm Lipow Associates.
The overall impact on gasoline prices, which are up 1 cent per gallon since Hurricane Laura, will depend on how much, if any, flooding occurs. Cheaper winter grade gasoline can be sold starting Sept. 16, and should help keep prices down.
“If refineries make it thru with no flooding, then gasoline prices might go up 3 to 5 cents,” Lipow wrote. “If this becomes a major flooding event, New Orleans and up toward Baton Rouge—then 15 cents or more.”