How Long Might it Take For Oil and Gas Production to Resume After Hurricane Ida?

Hurricane Ida was upgraded over the weekend to a Category 4, with a speed of 130 to 156 miles per hour - the 2nd most severe rating by the National Hurricane Center. 

The impact on the region is especially severe, as hospitals have already been overwhelmed with over 2,600 COVID-19 patients, where only 41% of the population is fully vaccinated. The storm blew off the roof of the Lady of the Sea General Hospital in Southeastern Louisiana. In another hospital, generator power partially failed, forcing hospital staff to move patients. The storm forced over 95% of Crude Oil (CL) offline, but Crude oil prices pared gains and even fell into a decline when rigs appeared to have escaped. ( source: bloomberg.com)

After having reached a Category 4, the hurricane weakened into a Category 1. While oil retraced its earlier gains – and even erased almost all of Friday’s gains – in anticipation of a quick return to business and continued supply, natural gas remained elevated as power outages kept refineries closed, leaving investors unclear about resumed operations. 

After rising to a four-week high, crude pared gains and even fell into negative territory, erasing most of Friday’s gains. Now that the concerns of disruption have been set aside, the market refocused on OPEC’s and allies’ expected hike to production. 

While the market appears to be pricing in higher oil supply, it isn’t necessarily a foregone conclusion. Mohammad Abdulatif al-Fares, Kuwait’s oil minister, told Reuters that oil producers should reconsider the increase in light of the fourth wave of the coronavirus. However, Reuters reported that sources said that the current agreement among oil producers to increase output by 400,000 barrels per day will likely be maintained after new talks are held on September 1. 

US Gasoline Outlook - Natural Gas Reaches Highest Since 2018

Crude rigs closed as a precautionary measure, but appear to have avoided significant disrepair. However, gasoline futures and Natural Gas (NG) rose on disruptions in processing facilities, touching the highest levels since 2018,  but like oil, turned gains into losses.

Gasoline (RB) pared earlier gains but remained over 1% higher on Monday, while Natural Gas was down -0.4% as of the time of writing.

According to Platts Analytics, offshore production historically returned to normal output between 10 and 14 days after the disruption. If the reopening and repair of damaged rigs follows this paradigm, full operations may be resumed in the week of September 6th. 

However, if the damage to refineries is significant, it may force them to remain shut longer than anticipated. Such a scenario would compound the current inflation in the United States, and gasoline prices could continue rising throughout the summer. 

Energy contracts, including Crude and Gasoline, have been volatile as the market has attempted to find a direction amid the resurgence of the Delta variant. However, now it appears that the path of Hurricane Ida, in addition to the state of output by the Organization of Petroleum Exporting Countries and their allies, will determine the future movement of prices.