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Will the gulf storm affect the oil industry? Here's what to watch



Among the fundamentals that traders must follow to judge the oil market, weather forecasts are also becoming important at this time of year. This is especially true for the weather forecast for the Gulf of Mexico.

The two main factors affecting oil prices this week are US oil production and the US stock market. and rose on Wednesday morning when traders reacted to a forecast that it would shoot 8.1 million barrels of US crude oil. Another price hike came on Wednesday when the company revealed that crude oil inventories fell by 9.5 million barrels last week.

However, traders should not leave the Gulf of Mexico eyes for the rest of the week as a major weather system, dubbed Tropical Storm Barry when it will reach sustained winds of 39 miles by the hour, could potentially impact oil production, refining, US exports, US imports and prices.

The tropical depression that is forming in the Gulf of Mexico should now gain enough strength to become a tropical storm and possibly a hurricane this weekend. The area most likely to be affected is one that is home to many large US refineries and major ports between Houston and New Orleans. In fact, this coastline is home to more than 45% of the total refining capacity of the United States. The storm is also expected to cause floods which, as we learned in 2017, can disrupt refining and transportation for long periods.

There is no way to predict exactly how a storm in the Gulf of Mexico will affect the oil industry and prices, but here are the main issues that traders should watch out for:

1. Offshore offshore oil production

One-third of offshore oil production in the United States is already down because of this imminent storm. About 16% of all crude oil production in the United States comes from offshore oil drilling.

2. Faults and damage of refineries

Oil refineries in the affected area may experience short- or long-term breakdowns following the storm and subsequent floods. In 2017, Hurricane Harvey was forced by the largest refinery in the United States, Motiva, owned by Saudi Aramco, to shut down completely for two weeks. The damage caused by the flood has not been completely repaired for several months.

Some meteorologists have already forecast up to two feet of rain for this storm. Gasoline and distillate production could be affected, as could crude oil reserves in the United States. If refineries are unable to process crude oil but their production is largely unaffected, this would result in a significant accumulation of crude oil inventories in the United States in weekly data published in the following weeks the hurricane.

3. Imports and exports interrupted

Port and pipeline closures due to flooding or other storm damage may also result in higher than usual build-up of crude oil storage in the United States. United States crude oil exports are now an important part of world oil trade. Most of the US crude oil is exported from the ports of Houston, Galveston and the Louisiana Offshore Oil Port (LOOP). Oil exports (and imports) may stop in bad weather and, in some cases, floods can put a port out of service for days or weeks after the storm. With extreme floods, we may see a temporary decline in US oil exports that will appear in the weekly and monthly export data after the storm.

Traders and market watchers should keep these questions in mind throughout the hurricane season in the United States, which lasts from May to November and peaks between August and October. However, every hurricane is different. The route, the wind force, the speed and the precipitation can have a different impact on the regions. For example, a storm may force offshore oil drilling and port closures for an extended period, but refineries may not be affected. Oil storage figures may seem unaffected in this case, as falling production and declining exports offset each other. Anyway, get ready for a crazy race this hurricane season.


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