Oil prices rise as Gulf production disruption looms

Crude oil prices rose earlier today on anticipation that Tropical Storm Francine will disrupt oil and gas production in the Gulf of Mexico.

News that Exxon was cutting production rates at its refinery in Baton Rouge, Louisiana, helped prices rise.

Reuters reported on Tuesday, citing unnamed sources, that Exxon plans to cut output at the 522,500 bpd unit to just 20 percent of capacity before Francine makes landfall. “We are closely monitoring and preparing for severe weather that could affect our operations in Baton Rouge,” an Exxon spokesman told Reuters. “Our primary focus is the safety of our workforce and communities in the affected areas. We continue to honor our customer commitments.”

Earlier in the week, media reported that Gulf field operators were evacuating crews from offshore platforms ahead of the storm. Chevron, Shell and Exxon were among the companies that halted work on some rigs in anticipation of the storm.

According to the latest update, Francine has strengthened to a Category 1 hurricane and will make landfall in Louisiana later today.

However, storm activity in the Gulf of Mexico was not the only reason oil prices rose, according to some analysts.

“Investors adjusted their positions after Tuesday’s sharp decline,” Nissan Securities analyst Hiroyuki Kikukawa told Reuters.

The sharp drop was largely caused by an OPEC update on oil demand, in which the cartel said it now expects slower growth than previously forecast. This was the second downward revision to demand forecasts by OPEC, which now sees demand rising in 2024 to 2.03 million barrels per day. This is down from 2.11 million bpd in its previous monthly report and 2.25 million bpd in previous projections.

The group also revised down its demand growth forecast for 2025 to 1.74 million barrels per day from 1.78 million bpd in last month’s oil market report.

Those updates on Tuesday tempered any concerns about supply disruptions, but now that Francine is approaching the Gulf Coast, they appear to have been reignited, pushing prices higher.

By Irina Slav for Oilprice.com

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