“Small Disruption Now Has Outsized Price Consequences”: Jefferies Warns As Hurricane Takes Aim At US Gulf Energy

Isaias has strengthened into a Category 2 hurricane in the overnight hours and is forecast to intensify further before making landfall along the US Gulf Coast late Friday or early Saturday.

Nearly two-thirds of Gulf of Mexico crude production is already shut in, while roughly 500,000 barrels a day of refining capacity is at risk. The disruption comes as a global refining crisis has pushed US gasoline and diesel prices into uncomfortable territory for consumers ahead of the midterm elections. While the supply impact is expected to be temporary, even brief refinery outages could tighten already constrained fuel inventories and add pressure to pump prices.

Jefferies consumer staples analyst Kaumil Gajrawala warned on Thursday morning: “A small disruption now has outsized price consequences. The second-order effect is freight cost, which favors asset-light models like KO (Buy), where bottlers carry the fleet and fuel exposure.”

US WTI prices rose as much as 5.6% on Thursday as oil/gas firms evacuated offshore platforms, moved drilling rigs, and prepared for port closures that could disrupt crude deliveries to major coastal refineries. On top of the 63% of regional crude production shut in, about 57% of natural gas output has also come to a halt.

This is a sizeable temporary hit to US crude supply. For NatGas, the national production impact is much smaller.

Here’s a map of offshore platforms and rigs, as well as major refineries in Isaias’ cone of uncertainty.

The next big issue is that refineries may see a decline in crude supply as offshore platforms reduce flows. Any refinery outage from storm-related damage would deepen a global refining crisis by reducing fuel production.

List of major US refineries in storm’s path. 

We noted on Thursday that any abrupt westward shift in the hurricane’s cone of uncertainty would put major refineries at risk, including Chevron’s Pascagoula refinery on Mississippi’s Gulf Coast. It refines 369,000 barrels of crude a day into gasoline, diesel, jet fuel, and premium base oils.

If storm-related damage materializes and disrupts US fuel supplies, could it give the Trump administration political cover for additional measures to boost domestic fuel availability, potentially including restrictions on refined-product exports ahead of the Northern Hemisphere winter?