Crude prices climb as Hurricane Ida threatens US Gulf energy infrastructure

Crude futures rallied Aug. 27 as US Gulf oil and gas infrastructure braced for Hurricane Ida, which is expected to make landfall in the US as a major hurricane Aug. 29.

NYMEX October WTI settled $1.32 higher at $68.74/b and ICE October Brent climbed $1.63 to $72.70/b.

Upstream producers widely began shutting in oil and gas production from US Gulf of Mexico Aug. 27 following preliminary evacuations of nonessential crews a day earlier as Hurricane Ida advanced toward the Gulf - which is a major refining and processing center.

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NYMEX September RBOB settled up 1.88 cents at $2.2742/gal and September ULSD climbed 2.60 cents to $2.1092/gal.

Ida was upgraded from a tropical storm to a Category 1 hurricane on Aug. 27 with the National Hurricane Center projecting a strengthening to a major Category 3 storm before making landfall Aug. 29 or Aug. 30 along the Louisiana coastline.

The US Bureau of Safety and Environmental Enforcement said Aug. 27 that about 58.5% of the US Gulf's crude oil, or 1.05 million b/d, already was shut in, as well as 48.8% of the region's approximately 2.2 Bcf/d of natural gas production, or about 1.07 Bcf/d. Ida is expected to become the first major hurricane of 2021 to significantly impact oil, gas and refining operations.

NHC has issued a hurricane watch for the central USGC stretching from Cameron, Louisiana to the Mississippi/Alabama border.

US Gulf Coast refined product prices rose ahead of Ida's arrival, with ULSD assessed at a 4.55 cent/gal discount to front month NYMEX ULSD futures, the highest level since March 26.

Among E&P producers, BHP has shut in production at its operated Shenzi platform, spokeswoman Judy Dane said Aug. 27.

BP late Aug. 26 said it had begun securing its offshore facilities and evacuating crews from its four US Gulf platforms and was starting to shut in production.

Chevron also said Aug. 27 it was shutting in production from its operated Gulf of Mexico platforms. While the major wasn't specific, some of its large producing fields in or near Ida's predicted trajectory include Blind Faith, Big Foot, Tahiti and Jack/St Malo.

In addition, Shell said late Aug. 26 it was in the process of shutting in production and evacuating all personnel from its Ursa, Mars, Olympus and Appomattox assets. Shell also shut in production at the Stones field in the southern US Gulf and was preparing to detach the FPSO (floating production, storage and offloading) vessel Turritella and move it to a safer location to wait out the storm.

While doing that, Shell continued to remove nonessential personnel from its eight US Gulf offshore assets.

The Louisiana Offshore Oil Port (LOOP) said it is executing its storm plan, although Clovelly Hub receipts and deliveries remained normal as of Aug. 27.

Refining and manufacturing facilities along the US Gulf Coast are closely monitoring the storm.

ExxonMobil's chemical and refinery complexes at Baton Rouge and Beaumont have started the hurricane preparedness process in preparation for severe weather, Julie King, ExxonMobil spokesperson, said.

Louisiana's 17 refineries have an aggregate capacity of 3.4 million b/d, representing approximately 20% of the nation's total refinery capacity, according to US Energy Information Administration data.

Mississippi has a total refinery capacity of around 394,000 b/d, according to EIA.

US Dollar slides on dovish Fed comments

A weaker US Dollar added further support to crude prices. The ICE US Dollar Index fell to 92.676 in afternoon trading, on pace for the lowest close since Aug. 16.

The dollar moved significantly lower midmorning following comments from US Federal Reserve Chairman Jerome Powell stating the central bank may begin tapering its bond buying program before the end of 2021. The market had largely expected Powell to announce the start of the taper program in September, and the unexpectedly dovish stance weighed heavily on the dollar.

"Seems that Chair Powell will run the economy hot to achieve full employment, which may take a while longer particularity for disadvantaged social groups. This likely means that any taper will be gentle and policy rates will remain very accommodative for quite a while," TD Securities head of commodity strategy Bart Melek said in an Aug. 27 note. "With no imminent attack on inflation, nominal rates have no reason to spike and inflation expectations may well edge higher."