Crude oil prices increased earlier today as concerns grew that Tropical Storm Francine could disrupt oil and gas production in the Gulf of Mexico.
Prices rose following reports that Exxon is reducing production at its Baton Rouge, Louisiana, refinery. According to Reuters, Exxon plans to cut production at the 522,500-barrel-per-day facility to just 20% of its capacity in preparation for the storm. An Exxon spokesperson told Reuters, “We’re closely monitoring and preparing for severe weather that may impact our Baton Rouge operations. Our primary focus is the safety of our workforce and communities in the affected areas. We continue to meet customer commitments.”
Earlier this week, media outlets reported that companies operating in the Gulf were evacuating crews from offshore platforms. Chevron, Shell, and Exxon were among those suspending work on some platforms due to the storm.
As of the latest update, Francine has intensified into a Category 1 hurricane and is expected to make landfall in Louisiana later today.
However, the increase in oil prices was not solely due to the storm. Analysts pointed out that investor activity played a role. “Investors adjusted their positions after Tuesday’s sharp drop,” said Hiroyuki Kikukawa, an analyst at Nissan Securities. The drop was triggered by an OPEC update on oil demand, which revealed a lower growth forecast than previously expected. OPEC now predicts 2024 demand growth at 2.03 million barrels per day, down from 2.11 million barrels per day in its previous report and 2.25 million barrels per day in earlier forecasts.
The group also lowered its 2025 demand growth forecast to 1.74 million barrels per day, down from 1.78 million barrels per day in last month’s report.
While these updates initially dampened concerns about supply disruptions, the approach of Tropical Storm Francine has reignited those worries, contributing to the recent rise in oil prices.