Tropical Storm Barry is heading towards the Louisiana coast with the potential to dump as much as 2 feet of rain on the region. The storm is not expected to deliver especially damaging winds, but the rainfall could have a significant impact on the U.S. oil and gas industry.
Offshore oil production, refineries and transportation may be impacted for days or even weeks to come. Here’s a look at what traders and consumers can expect:
- Offshore oil rig operators are taking rigs offline, evacuating personnel or moving rigs out of the storm’s path. By Wednesday, 600,000 barrels per day of oil production had been halted. That number increased to 1.1 million barrels per day by Friday, according to the Bureau of Safety and Environmental Enforcement. This is only a small fraction of the over 12 million barrels per day that the U.S. is currently producing, but it did contribute slightly to rising oil prices this week and could impact the price of WTI next week as well.
- The area of greatest impact from this storm is also home to much of the U.S. refining industry. Many of these refineries — including the largest refinery in the U.S., Saudi Aramco’s Motiva refinery — are susceptible to flooding damage. Initially, most refineries planned to continue regular operations during the storm, but as Barry bears down, there appears to be a change of heart. Phillips 66 is shutting down its 200,000 barrel per day refinery on Friday and Royal Dutch Shell is reducing rates at its Norco refinery and sending many workers home. Refinery shut downs and slow downs can cause temporary increases in gasoline prices in the weeks following the weather event. Interruptions at refineries can also push crude oil prices down after the storm, because downtime at refineries means less crude oil is being consumed. If refinery output slows more than oil production, we could see a build up of stored crude oil. This would be noticeable in data coming from locations like Cushing, Oklahoma. This extra storage could show up in the weekly data reported by the EIA for a week or two after the storm and could prompt traders to push down oil prices.
- Tropical Storm Barry could also hit U.S. liquified natural gas export terminals, though the latest forecasts show the storm passing to the east of the largest terminals, Sabine Pass and Cameron. Gas flows to these terminals, which account for 70% of U.S. LNG exports, have been reduced by 20% this week in preparation for the storm. The U.S. is not a major global exporter of LNG, but it has recently increased its volume.
Barry will likely become the first hurricane of the season to impact the American energy industry, but it’s only mid-July.