The U.S. hurricane season is approaching in the Gulf of Mexico, which may trigger a new round of soaring oil prices!

According to the U.S. Energy Information Administration (EIA), more than 90 percent of U.S. refineries are now on and running, near the highest level in the past five years.

Forty-seven percent of that refining capacity is located on the Gulf Coast, which has long been a hurricane-risk area. This means that the upcoming U.S. hurricane season will likely hit the region's short-term refining capacity significantly, and even cause further losses, such as the more than 350 oil spills in the region caused by Hurricane Ida in 2021.

Analysts at JPMorgan Chase pointed out that if bad weather forces most of the refining capacity in Texas and Louisiana to close as usual, the United States will face the dilemma of some fuel shortages.

Debnil Chowdhury, global vice president and head of refining for the Americas at Standard & Poor's, also said that if hurricanes hit the Gulf Coast this year and affect refining capacity, there is a good chance of a fuel shortage in the United States, which would lead to continued price increases.

Supply falls short of demand

The gradual recovery of tourism in the U.S. since the start of the summer and consumer demand for natural gas and diesel near pre-pandemic levels have also led to some shortages in U.S. energy supplies. Even if the fuel plant is now close to its maximum capacity, it still can't stop the inventory from continuing to decline.

And sanctions on Russia have added to the pressure on U.S. domestic fuel supplies.

Western sanctions on Russia mean 800,000 barrels a day of oil disappear from global markets, a figure that could rise to 1.4 million by summer, according to JPMorgan.

In addition, JPMorgan Chase added that U.S. diesel inventories reached their lowest level in 17 years in May, while gasoline inventories were also about 8% below the average for this time. Its analysts warned that future U.S. refining capacity is expected to fall by an additional 1.69 million barrels per day.

Jim Mitchell, head of oil analysts for the Americas at Refinitiv, also said the supply outlook is pretty grim, meaning prices are moving higher. "When inventories are large, fuel products can go anywhere at relatively low cost, and inventories are a buffer for security of supply. When this buffer is weakened, the potential for price rationing rises."

Hurricane pushes up prices

According to analysts, if the hurricane affects refineries for an extended period of time, it will reduce total inventories on the Gulf Coast and reduce the region's ability to transport fuel to the northeastern U.S. and Latin America. Additionally, shortages could be exacerbated if extreme weather impacts pipeline capacity or closes Gulf Coast ports.

Chowdhury said that would actually create an increase in Gulf Coast inventories, but would lead to global panic and higher prices.

He predicts that the global price of crude oil and crude oil refining products may rise by another 10%-20% by then, and the price of local areas may be particularly high.

"If a hurricane hits an important refining area, we will see another wave of supply shortages," he concluded.

Article source: Financial Associated Press