Oil and natural-gas futures settled higher on Friday to tally strong gains for the week as a storm, now known as Hurricane Ida, threatened the U.S. Gulf Coast.
Ida, with maximum sustained winds at 75 miles an hour, was a Category 1 hurricane as of 2 p.m. Eastern time Friday, according to the National Hurricane Center. It is forecast to make landfall along the U.S. northern Gulf Coast on Sunday.
The storm could become a “devastating hurricane” and may be on the same track as Hurricane Katrina, said Phil Flynn, senior market analyst at The Price Futures Group. Katrina caused severe damage to U.S. production and refinery capacity in the Gulf of Mexico in 2005.
Energy companies have been moving crews off platforms in the Gulf of Mexico. The Bureau of Safety and Environmental Enforcement reported Friday that personnel from a total of 89 production platforms — nearly 16% of the 560 manned platforms in the Gulf of Mexico—have been evacuated. An estimated 58.51% of current oil production, and about 48.79% of natural-gas production, in the Gulf has been shut in, the BSEE said.
The storm will “slow down petroleum and natural gas exports and imports,” said Flynn. Gulf of Mexico offshore wells account for 17% of U.S. crude oil production and 5% of dry natural gas production and more than 45% of total U.S. refining capacity is along the Gulf Coast, according to EIA data.
West Texas Intermediate crude for October delivery
rose $1.32, or 2%, to settle at $68.74 a barrel on the New York Mercantile Exchange. The U.S. benchmark marked a more than 10% weekly advance, based on the front-month contract, according to Dow Jones Market Data.
October Brent crude
the global benchmark, rose $1.63, or 2.3%, to $72.70 a barrel on ICE Futures Europe, with the front-month contract logging a weekly rise of over 11%. The most actively traded Brent contract, November
added $1.52, or 2.2%, at $71.70 a barrel.
September natural gas
which expired at the end of the trading session, rose 19 cents, or nearly 4.5%, at $4.37 per million British thermal units, with the front-month contract marking weekly gain of more than 13%. It saw the highest settlement since December 2018. The most active October natural gas contract
rose 18 cents, or 4.2%, to $4.39 per million Btus,
Production outages as a result of the storm have allowed WTI, the U.S. benchmark, to narrow its discount somewhat versus Brent. The gap had widened to more than $4 a barrel during Thursday’s session, its widest since May 2020, but has retreated back to $3.49, noted Carsten Fritsch, analyst at Commerzbank, in a note.
He noted that while “‘only’ 5% of U.S. natural gas is produced in the Gulf of Mexico…the market is tight in any case.”
Data from the EIA released on Thursday revealed a smaller-than-expected weekly climb in U.S. natural-gas inventories, up 29 billion cubic feet to 2.851 trillion cubic feet — which is below the year-ago and five-year average levels.
“How demand expectations change in the wake of the storm will depend on the damage sustained,” said Tyler Richey, co-editor at Sevens Report Research.
“If refineries bounce right back and begin normal operations after landfall, there will be a limited impact on demand and therefore prices,” he told MarketWatch. “But if we see delays in restarting operations, then expect oil prices to underperform and refined products to outperform given expectations of reduced demand for the former and supply draws in the latter.”
On Nymex Friday, September gasoline
edged up by 0.8% to $2.27 a gallon, up more than 12% for the week, while September heating oil
added nearly 1.3% at $2.11 a gallon, for an over 10% weekly gain.