(EnergyAsia, August 30 2012, Thursday) — Crude oil prices fell on the twin expectations that Hurricane Isaac will not inflict significant damage on crude oil production in the US Gulf of Mexico and the G7 countries might release oil stockpiles to stem the recent rise in prices.
Brent crude oil has fallen to near US$112 while US WTI is hovering around US$95, both down about US$3 at the start of the week when earlier reports suggest Isaac, the worst hurricane since Katrina in 2004, could sharply cut oil production in the US Gulf area.
Isaac hit Louisiana state on Tuesday, drove water over a levee outside New Orleans a day later, but has largely avoided oil rigs, platforms and other energy facilities in the Gulf of Mexico.
In a precautionary move, US Gulf Coast refiners shut in more than 1.3 million b/d of capacity ahead of Hurricane Isaac’s Tuesday landfall, according to consultant GlobalData.
It expects the shut-in to result in the loss of production of 598,000 b/d of gasoline, 325,000 b/d of diesel and 78,000 b/d of natural gas liquids for about three to four days, with minimal impact on fuel supplies.
The refiners began shutting their plants on Monday as then Tropical Storm Isaac veered away from Florida directly towards New Orleans.
In 2004, Hurricane Katrina took the same direction and devastated New Orleans and the surrounding area. Refined product prices soared as refiners experienced major flooding and wind damage. Some refineries recovered quickly, while others were out of service for months. However, this is a much smaller storm and far less damage to a more prepared industry is expected, said GlobalData.
In a warning to traders on Tuesday, finance ministers of the Group of Seven most industrialised nations (G7) said they were ready to release their strategic oil reserves to counter the recent rise in oil prices.
Despite opposition from the International Energy Agency (IEA), the G7 issued a statement favouring the use of the stockpiles:
“We stand ready to call upon the International Energy Agency to take appropriate action to ensure that the market is fully and timely supplied.
“The current rise in oil prices reflects geopolitical concerns and certain supply disruptions. We encourage oil-producing countries to increase their output to meet demand.”