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Crude Price Soars as Twin Storms Roar Toward Gulf of Mexico

Twin tropical storms Marco and Laura are intensifying in the Gulf of Mexico (GoM) and are feared to pose a serious threat to the coasts of Louisiana and Texas. Energy companies are thus busy chalking out options to counter the storms, which are predicted to make major landfall within this week.

Impact of Twin Tropical Storms

The U.S. National Hurricane Center already issued warning of a severe hurricane and landfall across the borders of Texas, GoM and Louisiana. Per the hurricane center, Laura is forecast to produce rainfall between 4 and 8 inches with isolated maximum amounts of 12 inches across the western and the central parts of  the U.S. Gulf Coast close to the Texas and Louisiana border and inland areas.

GoM, which is anticipated to bear the brunt of the hurricane, is the energy hub of the United States. It accounts for about 17% and 3% of the total oil and gas production of the nation, respectively. The region is also a home to about 45% of the country’s refining capacity. Refineries in the path of the storm are already shuttered, inducing a dip in the gasoline supply. The hurricane is likely to cause weeks of disruptions at the refineries on its way, thereby signalling possibilities of unit closures, fire break-outs and supply shortage, which in turn, will affect facilities for months.

Will This Double Whammy Turn the Tables?

However, amid all this catastrophe apprehended by weather offices, a solution to bump up the oil price could just be found out. WTI crude prices were marginally up during Monday’s trading as double tropical storms compelled the shutdown of offshore drilling rigs, which are responsible for more than half the belt’s crude production and nearly half of its natural-gas output. If this hurricane develops into a big disaster as estimated by many, we should see crude prices climb over the next few days and perhaps remain elevated in the following week as well. On the New York Mercantile Exchange, WTI crude futures gained 28 cents or 0.66% to settle at $42.62 a barrel yesterday.

Energy Players Respond to Imminent Crisis

The brewing storm already affected the operations of most energy companies, which are taking remedial measures to combat its adverse effects. Several operators either suspended their offshore activities or are in the process of evacuating their oil and gas facilities in GoM. Nearly 114 platforms are already vacated, which represents 18% of the staffed platforms in the Gulf coast. This in turn, contributes to 58% of the GoM crude output and 45% of its natural gas output. The shut-in oil output holds above 1.065 million barrels per day while the shut-in gas production retains 1.205 billion cubic feet per day.

Major energy players like Exxon Mobil Corporation XOM, Chevron Corporation CVX, BP plc BP, Royal Dutch Shell plc RDS.A and Equinor EQNR already halted their production platforms in the GoM in the wake of the expected landfall.

BP temporarily stalled its production at its four operated platforms in the U.S. Gulf of Mexico, namely the Thunder Horse, Atlantis, Mad Dog and Na Kika. This integrated energy player also started removing workers from offshore platforms and drilling rigs.

Management at this currently Zacks Rank #3 (Hold) Chevron stated that authorities are making an all-out effort to empty the staff deployed at the company’s Big Foot, Genesis, Jack/St. Malo and Tahiiti shut-in production platforms. Further, the organization initiated the clearance of non-essential employees from its Blind Faith and Petronius platforms. However, the production scale remained unaffected despite such unwarranted crisis situation. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Meanwhile, Shell began to withdraw non-essential workers from a few of its offshore plants. Management at this Hague, Netherlands-based company confirmed that its current production has so far been untouched by the impending natural calamity and operations are also on to safeguard its drilling activities.

Another energy entity Equinor completed evacuating its Titan oil-production platform in the U.S. Gulf of Mexico ahead of the twin storms moving into the region. The company also stopped its oil production at the facility, which is about 65 miles (105 km) off the coast of Louisiana as the tropical storm Marco hurtled toward the upper part of the U.S. Gulf of Mexico while Laura is expected to enter the hotspot gulf area this week.

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