A growing storm threat in the Gulf of Mexico has knocked out more than a quarter of the region's offshore oil production, while ongoing turbulence in the Middle East pushed international crude prices up by more than 5% at one point on Thursday.

As of midday Wednesday, data from the US Bureau of Ocean Energy Management showed that roughly 512,000 barrels per day of oil output in the Gulf of Mexico had been shut in, equal to 25% of the region's total production, with about 16% of natural gas output also halted. Major oil companies including Shell, Chevron and BP have evacuated non-essential personnel and shut down operations at multiple offshore facilities.

The timing of the storm is particularly unfavorable. US refineries are running at about 95% of capacity to fill overseas supply gaps caused by war, gasoline and distillate inventories sit at multi-decade seasonal lows, and the Strategic Petroleum Reserve has fallen to its lowest level since 1982.

Robert Yawger, director of energy futures at Mizuho Securities, described the situation as "the worst timing in 25 years," warning that if US refining capacity is forced offline, the consequences "would be catastrophic."

WTI crude rose as much as 5.6% on Thursday before giving back part of those gains after Trump said he would not attack Iran before the election, leaving the benchmark up 3.44% as of publication.

More Than a Quarter of Gulf Oil Production Shut In

Energy producers in the US Gulf of Mexico have begun shutting offshore facilities and evacuating workers in response to the hurricane.

Data from the National Hurricane Center shows sustained winds reaching 75 miles per hour, with the storm located about 460 miles south-southwest of the Mississippi River delta on Wednesday night. Current forecasts suggest it could make landfall late Friday night or early Saturday morning near Louisiana, Mississippi, Alabama and the Florida panhandle.

By midday Wednesday, about 512,000 barrels per day of crude production had been shut in, equivalent to 25% of current Gulf output, while roughly 16% of natural gas production was also closed. In addition, workers have been evacuated from eight offshore platforms and two drilling rigs.

Major oil companies have already taken action. Chevron said it has begun shutdown procedures and evacuated personnel at four Gulf of Mexico assets. Shell has halted production and evacuated workers at five facilities while removing non-essential personnel from another. Harbour Energy has also begun curtailing output and evacuating workers at some facilities, and BP is evacuating non-essential personnel from offshore installations.

The storm's path remains the key factor determining the extent of the impact on energy supply. If the forecast track holds, Chuck Watson, a risk modeler at Enki Research, expects oil and gas production disruptions may not last more than a week.

Refining Supply Faces Greater Risk

Compared with offshore crude production, the market is more concerned about the storm's impact on the US refining system.

Most US refineries are located along the Gulf Coast and are currently operating at about 95% of capacity, near full utilization. At the same time, the US is relying on heavy refining runs to compensate for overseas supply disruptions caused by war and other factors, leaving the system with almost no spare capacity.

Andy Lipow, president of Lipow Oil Associates, estimates that about 2.7 million barrels per day of US refining capacity — or 14% — lies within or near the storm's forecast path.

If the storm track shifts further west, important energy facilities including Chevron's refinery in Pascagoula, Mississippi, would face greater risk. That refinery has a crude processing capacity of 369,000 barrels per day and can produce gasoline, diesel, jet fuel and premium base oils.

Lipow said at least some refineries in the New Orleans/Baton Rouge area and the Mississippi/Alabama region may need to reduce crude runs. At the same time, tankers delivering crude to refineries and shipping refined products from them could also face weather-related delays, with Florida particularly exposed because the state relies on fuel shipments from the Gulf Coast.

If refining capacity is further damaged, US refined product supply could come under greater pressure. Robert Yawger, head of energy futures at Mizuho Securities, warned that if US refining capacity is forced out of the market, it could cause severe consequences and force the market to face the risk of restricted diesel exports.

US Fuel Inventories Lack a Buffer

The storm threat has drawn intense market attention partly because US fuel inventories are already at low levels.

Data shows US gasoline inventories recently fell to their lowest for this time of year since 2012, while distillate inventories including diesel dropped to their lowest for early October on record.

Meanwhile, the US Strategic Petroleum Reserve has already been heavily drawn down and now stands at about 283 million barrels, the lowest level since 1982.

This means that if the hurricane causes large-scale disruptions to refineries or transportation facilities, the inventory buffer available to fill supply gaps has narrowed significantly.

More broadly, global refined product supply is also under pressure. The Iran war has damaged some Middle Eastern refineries or disrupted transport, and Russian refineries have been hit by drone attacks. Against this backdrop, US refineries have become an important source of global fuel supply.

As a result, the storm's impact on US Gulf of Mexico energy infrastructure may not only affect the domestic fuel market but could also tighten global refined product supply further.

Middle East Situation Is the Core Driver of Oil Prices

Beyond supply risks in the US Gulf of Mexico, the core reason for oil price swings is the situation in the Middle East.

According to Xinhua, Yemen's Houthi group said on the 8th that it had struck Saudi Arabia's King Khalid International Airport in Riyadh with ballistic missiles for the second time that day, while warning relevant personnel to stay away from Saudi oil facilities it considers "targets."

US media reported that Houthi attacks on Saudi Arabia, attacks on tankers near the Persian Gulf and market speculation that the US might resume strikes on Iranian targets have combined to heighten volatility in energy markets. Trump later posted on social media to deny the speculation, saying he would not attack Iran before the election, and international oil price gains partially retreated.

With production shut in the US Gulf of Mexico, refining facilities facing hurricane threats and the Middle East situation in turmoil with an uncertain outlook, supply-side pressure in the crude market continues to build.

However, the ultimate impact of the hurricane on energy markets still depends on its landfall path and intensity.

On path, current forecasts suggest the hurricane may make landfall east of New Orleans, a position that could help avoid some core energy facilities along the US Gulf Coast. On intensity, analysts note that even a Category 1 hurricane could require about a week for refining facilities to resume normal operations.