The US hurricane season will be felt around the world this year

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Tropical storms have a nasty habit of sweeping through the Gulf of Mexico and surrounding states during the warmest months of the year. In addition to their enormous potential human cost, they can shut down oil production and refining, pipelines and ports, and cause disruptions that can last for weeks.

Typically, the impact on oil and gas supply chains – and on prices – is fairly localized. Not this year.

The Gulf of Mexico has become hugely important to global oil balances as the world struggles to meet strong post-Covid demand, along with eroded spare manufacturing capacity in OPEC countries and reduced oil and gas supplies from Russia.

The US has stepped in, with record amounts of oil and gas being shipped from terminals, most of them on the Gulf Coast, to buyers in Europe and Asia. A large storm or series of storms like the ones we saw in 2005 or 2008 would potentially endanger these rivers for several weeks.

And it’s not just offshore production and refineries in Louisiana and Texas that would be affected. Oil stocks are already being replenished by the largest-ever extraction of crude oil from the Strategic Petroleum Reserve, located at four locations along, you guessed it, the Gulf of Mexico coast.

A severe storm would also affect the US’s ability to manufacture refined products, which are in short supply almost everywhere. While the country has large emergency stocks of crude oil, it has virtually no refined products. With a large refining sector, commercial inventories have historically served the role of ensuring an uninterrupted supply of product to consumers. But inventories of key products like gasoline and diesel are near multi-year lows for this time of year.

For example, in early June, the amount of gasoline stored was the lowest since 2014. And although distillate fuel inventories are beginning to rise according to their normal seasonal pattern, they are still the lowest for this time of year since 2005. The country is not well positioned to deal with disruptions to deal with

However, most forecasters see an active hurricane season. The U.S. National Oceanic and Atmospheric Administration has announced there will be 14 to 21 named storms, while Colorado State University put the number at 20 in its latest outlook. The first, Alex, flooded parts of Florida earlier this month. In comparison, an average season has 14 named storms.

High winds, high tides and storm surges endanger overseas shipments and spread the effects of a storm well beyond US shores. Exports of crude and refined products are close to 10 million barrels per day.

European countries scrambling to replace supplies from Russia after the Kremlin-backed invasion of Ukraine secured nearly 49 million barrels of US crude in April. Volumes fell in May but are likely to rebound if the European Union sanctions on sea imports of Russian crude take effect.

Gas supplies are also at risk. All five operating liquefied natural gas export terminals are located along the Gulf of Mexico coast between Corpus Christi in Texas and Lake Charles in Louisiana – potentially putting them in the path of hurricanes.

An explosion and fire at Freeport LNG in Texas on Wednesday, regardless of storms, is expected to shut down the facility for at least three weeks and possibly much longer. News of the fire prompted an immediate 16% surge in already high European natural gas prices.

This year, it won’t just be Gulf Coast residents and US consumers who will be worried about hurricanes. The effects of a major storm will be felt around the world.

This column does not necessarily represent the opinion of the editors or of Bloomberg LP and its owners.

Julian Lee is an oil strategist for Bloomberg First Word. He was previously a senior analyst at the Center for Global Energy Studies.

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