Weather Effects on Crude Oil

Hurricanes

• Storms such as hurricanes can affect North American oil operations. In 2005, Hurricane Katrina hit New Orleans and devastated the entire region and halted production on both drilling platforms and refineries. Even well after the storm has passed, storms such as these can stop production for weeks to months. Additionally, the region itself can be so battered that transporting the oil out of the region is impossible via ports or roads for quite some time. This quickly reduces the supply of oil and causes prices to skyrocket.

Sandstorms

• In Kuwait in April 2011, sandstorms were so intense that all ports were closed. Oil operations were suspended, as well as oil exports. In areas in where sandstorms pose a threat, oil production can be affected as well. Kuwait is an important exporter of oil, therefore this lack of production because of the sandstorms resulted in higher prices for crude oil. Because so many of the largest exporters of oil are in the Middle East, a region prone to this type of weather, sandstorm activity has the potential to be extremely detrimental to the price of crude oil.

Flooding

• Flooding can have a tremendous impact on crude oil production. In 2010, Pakistan shut all of their oil refineries due to flooding, reducing the overall supply available to the world. Fortunately, refineries can recover more quickly (in about a week) from flooding circumstances than from hurricane damage.

Earthquakes

• On March 11, 2011, Japan suffered a tremendous earthquake that then caused a 30-foot tsunami to hit the coast. One oil refinery caught fire as a result. Earthquakes and tsunamis both can cause disruption of oil production, again decreasing the supply available for worldwide consumption.

Seasonal Demand

• Weather also affects crude oil prices seasonally. In the winter, cold weather increases the demand for heating oil and therefore the price for heating oil increases as well. In the summer, travel often increases and therefore fuel for airplanes and cars is in greater demand, causing prices to increase.