Supply Crunch Weighs on Oil as Storm Moves toward Gulf Coast

Yesterday, oil prices hit a new multi-year high with crude reaching $72.29, while fuel prices sustained high levels. These price increases come amid rising concerns that oil could break the $100 threshold by the end of the 2021 calendar year. With rising demand and concerns surrounding the idea of inflation, prices are sure to be extremely volatile throughout the remainder of the year.

The International Energy Agency (IEA) has numerous times called for OPEC+ to ramp up production to meet the return to balance of the supply chain. OPEC+ collaborators would need to increase supply to levels seen before the COVID-19 pandemic decimated the supply chain. Inventory levels reported last week showed a supply gap, with US refineries quickly draining crude stocks as they ramp up operations. In addition to concerns over fuel price movements, another major concern has been brewing with the arrival of new potential storms as the Atlantic hurricane season draws closer.

Meteorologists have now estimated that the disturbance in the Gulf of Mexico could make landfall as early as the end of the week. This would be the third storm of the 2021 Atlantic hurricane season and would be given the name Claudette. According to the National Hurricane Center (NHC), the chance of this disturbance forming into a tropical storm within the next two days is at 70%, with a 90% chance to form in the next five days. Much of the Southeast is preparing for heavy rainfall and possible flooding, especially in the southern region of Louisiana. The main concern right now is that because the storm has not fully formed, there is much more uncertainty about when and where it will hit. Over the next few days, increased rain and a cold front are possible in much of the Southeast as the country waits to see what the storm will do next.