Oil Prices Jump 3% as Hurricane Takes 675,000 bpd Offline in the Gulf of Mexico

Oil prices climbed nearly three percent on Wednesday afternoon, spurred by the fear of supply disruptions as Hurricane Francine bulldozes its way through the Gulf of Mexico, where major operators have already shut-in some production and evacuated some personnel. 

The price surge comes in spite of the Energy Information Administration’s (EIA) inventory report that came out earlier in the day, showing an increase in U.S. stockpiles, initially causing oil to move lower before hurricane headlines reclaimed the trading day.

The fears are that this hurricane could lead to a longer production shutdown at a time when Libyan production is largely offline over a dispute between rival governments.

At 2:15 p.m. ET on Wednesday, Brent crude was trading up 2.41% at $70.86 per barrel. The U.S. benchmark, West Texas Intermediate (WTI), had further gains, trading up 2.60% at $67.46 per barrel.

Meteorologists expect Tropical Storm Francine to strengthen into a hurricane later today as it traverses northeast toward the Gulf Coast and becomes a looming threat for dozens of offshore oil and gas platforms and inland refineries.

The latest weather models expect Francine to strengthen into a category two system tomorrow afternoon or evening and make landfall on the Louisiana coast.

On Monday, Chevron, Exxon Mobil, and Shell announced workers at offshore rigs in the storm’s path were being evacuated and drilling activities suspended.  

According to a Reuters report on Tuesday, citing unnamed sources, Exxon was planning to slash production at the 522,500-bpd facility to just 20% of capacity ahead of Francine’s landfall.

The latest update as of 2:11 p.m. from the U.S. Bureau of Safety and Environmental Enforcement (BSEE), based on data from offshore operators at 11:30 a.m. is that 46% of the GOM’s 371 manned platforms have been evacuated, while 60% of personnel have been evacuated from five rigs operating in the Gulf. Four other rigs have moved off location in a preventative maneuver.

Almost 40% of GOM oil production has been shut in, and nearly 50% of natural gas production has been shuttered.