Hurricane Ida disruptions limit crude oil production and refining activity
On Sunday, August 29, Hurricane Ida made landfall near Port Fourchon, Loiusiana, as a Category 4 hurricane (sustained wind speeds of 130–156 miles per hour). As a result of the hurricane, at least nine refineries (approximately 2.3 million barrels per day [b/d] of refining capacity) shut down or reduced production. In addition, 96% of the crude oil production and 94% of the natural gas production in the U.S. federally administered areas of the Gulf of Mexico (GOM) were shut in, according to estimates by the Bureau of Safety and Environmental Enforcement. Several ports along the Gulf Coast, including the Louisiana Offshore Oil Port (LOOP), were closed. As of September 8, significant levels of refining and crude oil production remain shut in. Because of the shut ins related to Hurricane Ida, in the September Short-Term Energy Outlook (STEO), we revised down U.S. crude oil production and refinery runs from the August forecast.
Our estimate for U.S. crude oil production for the GOM was revised down by 0.2 million b/d from the August STEO to 1.5 million b/d in the September STEO (Figure 1). Production in the GOM was similarly revised down for September, falling 0.5 million b/d from the August STEO to 1.2 million b/d in the September STEO. We expect that GOM crude oil production will gradually come back online, increasing to previously forecast levels in October and averaging 1.7 million b/d in the fourth quarter of 2021 (4Q21). We revised down total U.S. crude oil production for September from 11.2 million b/d in the August STEO to 10.8 million b/d in the September STEO because we expect production in the Lower 48 states to increase slightly, partially offsetting GOM declines.
For the week ending August 27, before Hurricane Ida made landfall, our Weekly Petroleum Status Report data indicated that crude oil inventories in the Gulf Coast (PADD 3) were 231 million barrels, 3% higher than the 2015–19 average, which excludes 2020 inventories that were significantly elevated as a result of disruptions related to COVID-19. From August 27 to September 3, crude oil inventories in the Gulf Coast fell by 2.6 million barrels and U.S. crude oil production fell by 1.5 million b/d. Over the same period, crude oil imports into the Gulf Coast fell by 247,000 b/d to 787,000 b/d. U.S. crude oil exports (EIA does not have weekly data on regional exports), which are mostly out of the Gulf Coast, fell by 698,000 b/d over the same period.
Our estimate of crude oil inputs into refineries in August fell by 166,000 b/d from the August STEO to 15.7 million b/d in the September STEO, largely driven by refineries shutting down prior to Hurricane Ida. Some refiners have resumed operations or initiated the restart process, but as of September 7, 2021, approximately 1.6 million b/d of refining capacity remained offline according to Industrial Info Resources (IIR), who anticipated that the unplanned outages will end by the third week in September (Figure 2). Weekly data indicate that gross inputs into Gulf Coast refineries fell by 1.6 million b/d from the week ending August 27 to the week ending September 3. In our September STEO, we expect refinery runs will average 713,000 b/d lower in September than they would without the disruptions. Repairs to any infrastructure required to resume refinery operations, however, could potentially take longer, making the forecast highly uncertain. For 4Q21, we forecast the average crude oil inputs into refineries to be mostly unchanged from the August STEO, remaining at 15.1 million b/d. Lower refinery runs in September will likely contribute to continuing declines in gasoline stocks during September and support gasoline crack spreads in the coming weeks.
In the September STEO, we revised down our forecast for total U.S. gasoline inventories in September 2021 by 7.4 million barrels from the August STEO. Our downward revision was driven by Gulf Coast inventories, which we revised down by 3.6 million barrels (Figure 3). We revised down gasoline inventories for the East Coast (the largest regional consumer of gasoline) by 2.6 million barrels. Weekly data indicate that there were strong draws on gasoline stocks in both the East Coast and Gulf Coasts. From August 27 to September 3, total gasoline stocks on the East Coast fell by 3.6 million barrels and total gasoline stocks on the Gulf Coast fell by 3.2 million barrels. We expect that gasoline inventories will gradually increase through the end of 2021 and return to previously forecast levels in 1Q22.
Hurricane Ida’s impacts on the Gulf Coast refinery complex are likely to add upward pressure on gasoline prices in the near term. Based on weekly EIA data, estimated gasoline margins surpassed 70 cents per gallon (gal) in late August. We expect margins will remain elevated in the coming weeks as refining operations in the U.S. Gulf Coast remain disrupted. We forecast that U.S. retail gasoline prices will average $3.14/gal in September before falling to $2.91/gal, on average, in 4Q21 (Figure 4). The expected drop in retail gasoline prices reflects our forecast that gasoline margins will decline from currently elevated levels, both as a result of rising refinery runs as operations return in the first half of September and because of typical seasonality.
For a more detailed analysis of the impacts of Hurricane Ida on the petroleum markets, see our September STEO forecast.
U.S. average regular gasoline and diesel prices increase
The U.S. average regular gasoline retail price increased nearly 4 cents to $3.18 per gallon on September 6, 97 cents per gallon higher than a year ago. The Gulf Coast price increased more than 5 cents to $2.83 per gallon, the East Coast price increased nearly 5 cents to $3.07 per gallon, and the Midwest price increased more than 4 cents to $3.05 per gallon. The West Coast price decreased less than 1 cent to $3.93 per gallon, and the Rocky Mountain price decreased less than 1 cent, remaining virtually unchanged at $3.65 per gallon.
The U.S. average diesel fuel price increased more than 3 cents to $3.37 per gallon on September 6, 94 cents higher than a year ago. The Gulf Coast and Midwest prices each increased more than 4 cents to $3.10 per gallon and $3.28 per gallon, respectively, the East Coast price increased nearly 3 cents to $3.33 per gallon, the West Coast price increased more than 2 cents to $4.02 per gallon, and the Rocky Mountain price increased nearly 2 cents to $3.65 per gallon.
Propane/propylene inventories rise
U.S. propane/propylene stocks increased by 0.8 million barrels last week to 70.1 million barrels as of September 3, 2021, 18.0 million barrels (20.4%) less than the five-year (2016-2020) average inventory levels for this same time of year. Midwest, Rocky Mountain/West Coast, and East Coast inventories increased by 0.5 million barrels, 0.3 million barrels, and 0.2 million barrels, respectively. Gulf Coast inventories decreased by 0.2 million barrels.
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