Home Business All Eyes on Oil as Tropical Cyclone Isaac Heads Towards Gulf

All Eyes on Oil as Tropical Cyclone Isaac Heads Towards Gulf

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There have been several factors affecting oil prices in the U.S. of late, one of which was the Richmond, California refinery fire at Chevron’s facility there. Analysts say that most of the impact of this incident is contained to California itself, but there is another fire which will have an impact across the board.

All Eyes on Oil as Tropical Cyclone Isaac Heads Towards Gulf

There was an explosion at the Amuay, Venezuela refinery over the weekend, caused by a natural gas leak. The fire has caused 39 deaths, and severely injured 80 other people as well. According to reports, the explosion damaged the storage tanks located on the facility’s property, but did not hurt the refinery’s ability to continue operation, once sufficient cleanup has taken place. This refinery is reported to have the ability to be up and running in two days, but whether or not that is realistic, remains to be seen.

Amuay produces 645,000 barrels of oil per day, and is ranked in the world’s top ten list of largest refineries. While officials claim they have a sufficient inventory of products to supply local needs, they will have to cut exports to the U.S., so as not to run short. This could cause the price of oil to rise in the U.S., causing yet another hike to already high prices for gasoline and other products.

The companies most likely to be affected by this are Chevron Corporation (NYSE:CVX), as it owns the Richmond facility which caught fire last week, and Valero, which is strategically positioned to capitalize on Gulf of Mexico production and rising prices. Bank of America’s Merrill Lynch has rated Valero Energy Corporation (NYSE:VLO) a “Buy” status, due to these factors.

Merril Lynch further notes:

Key questions surround the extent of any downtime with the potential implications: first, heavy oil processed by the refinery could head to the US Gulf, pressuring regional discounts vs LLS; next while PdVSA officials claim it has ample product inventories to sustain domestic supplies additional exports may be pulled from the US; finally, if export commitments are disrupted this may provide substitution opportunities for GC refiners. While information is limited, the risk is regional product prices on the Gulf move higher. Note that largest refinery operators on the US Gulf Coast are Valero Energy Corporation (NYSE:VLO), Chevron Corporation (NYSE:CVX), Exxon Mobil Corporation (NYSE:XOM), Royal Dutch Shell plc (NYSE:RDS.A) (NYSE:RDS.B) and Marathon Petroleum Corp (NYSE:MPC).

Yet another factor in gas and oil prices is the looming tropical storm Isaac, which is bearing down on the oil rich coast of Louisiana. When the tropical cyclone winds that accompanied Katrina in 2005 hit Louisiana, oil production in the area was shut down in some places for months, in order to allow cleanup of the work sites. If tropical storm Isaac proves to have the same damaging capabilities, it could send prices skyrocketing in the region.

This is several big hits on U.S. oil prices within a two week time frame, and it will have at least a short term effect on prices. Depending on the severity of the tropical cyclone now headed for Louisiana, we could see a more long term increase when we purchase gasoline, and other oil products. This storm, coupled with the 2 fires mentioned above, may well be a boon for the oil companies, in terms of prices soaring, but will definitely take a toll on consumers throughout the U.S., as prices directly affect their budget in an already weakened economy.

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