Hurricane Isaias has disrupted U.S. crude oil production in the Gulf of Mexico and poses a risk to approximately 2% of the nation's refining capacity, complicating an already tight global fuel market. The storm is moving toward Mississippi, Alabama, and the Florida panhandle as a Category 3 system with maximum sustained winds of 120 miles per hour, according to the National Hurricane Center. Landfall is expected Friday night or early Saturday.
Oil companies have shut in about 1.3 million barrels per day, representing roughly 63% of total U.S. production in the Gulf, as of Thursday, according to the Bureau of Safety and Environmental Enforcement. While the hurricane appears to be veering away from the dense refining region in southern Louisiana near New Orleans and Baton Rouge, it threatens facilities further east. The storm could impact Chevron's refinery in Pascagoula, Mississippi, and a Vertex Energy refinery in Saraland, Alabama, both of which are under hurricane warnings. Andy Lipow, president of Lipow Oil Associates, noted that these two facilities can produce a combined 466,000 barrels per day, or 2.4% of U.S. refining capacity.
Chevron's spokesperson Ross Allen stated that the Pascagoula refinery remains operational. Vertex officials were not immediately available for comment regarding their Saraland facility. Lipow emphasized that Gulf Coast refineries are currently running at 95% of capacity, leaving no slack in the system to compensate for any lost production.
This disruption arrives as diesel prices have soared due to conflicts in Eastern Europe and the Middle East knocking out refining capacity. Ukraine's strikes on Russian refineries forced Moscow to ban diesel exports, while Iran and its Houthi allies have attacked refineries in the Middle East. U.S. refiners have stepped in to exploit wide profit margins by exporting diesel globally, particularly to Europe.
Kevin Book, managing director at ClearView Energy Partners, explained that historically, fuel prices rise while crude prices fall during Gulf refinery outages because those refineries stop demanding crude and producing consumer fuel. Book told CNBC's "Squawk Box" on Thursday that tankers will be delayed delivering crude oil to refineries while other tankers are delayed loading gasoline, jet fuel, and diesel out of them. He added that Florida will experience delays in receiving gasoline, jet fuel, and diesel.