Hurricane Beryl, one of the most recent extreme weather events, had caused market fears that crystallized through higher crude oil prices, as it approached Texas in early July.
According to the US Energy Information Administration, Texas accounted for 42 percent of total US crude oil production in 2022, while it has the largest number of crude oil refineries nationwide.
“About half of the total US refining capacity is located along the Gulf,” Han Tan, an analyst at Exinity, told AFP. That’s enough to push prices higher, as investors worry about potential supply disruptions.
“Markets are fearing that Hurricane Beryl is just a prelude to what could be a storm-heavy season this year,” he explains.
This comes as the World Meteorological Organization warned that the arrival of Hurricane Beryl at this early time of the year, and its rapid intensification, could herald the nature of storms for the coming years.
Wildfires in Canada in May sent crude oil prices soaring as they threatened Fort McMurray, the nerve center of Canadian oil production.
Climate change is now “a major source of risk for oil markets,” says Jorge Leon, an analyst at Rystad Energy, who expects it to “escalate in the coming years… becoming more pronounced and more extreme.”
Difficulty of prediction
Moreover, analysts compare climate risks to geopolitical risks in that they are harder to predict, while prices are reflected in supply and demand risks. But Lyon also believes that “climate risks are less manageable in the short and medium term.”
He adds that this could also apply in the long term, by reducing carbon emissions. If fossil fuels are the biggest contributor to global warming, this means that climate disruption will have a more pronounced impact on the operations of oil and gas groups.
“Climate change has affected and will also affect oil production,” Tamas Varga, an analyst at PVM Energie, told AFP, noting that hotter weather disrupts refineries.
In the same context, Han Tan explains that “many European refineries were designed in the 1960s and 1970s primarily to withstand cold temperatures more than hot temperatures.”
Fossil fuels, including coal, oil and gas, are responsible for more than 75 percent of global greenhouse gas emissions, according to the United Nations.
For the first time, the world’s countries agreed to a historic compromise at the UN Climate Conference (COP28) in Dubai, paving the way for a gradual phasing out of fossil fuels, despite the many privileges of oil and gas-rich countries. However, the text adopted by consensus does not directly call for a halt to fossil fuel extraction.
“We cannot rationally expect investors to reverse this phenomenon while trying to increase their profits,” says Swissquote’s Ipek Ozkardskaya.
In fact, one can point in this area to the two major British oil companies, Shell and BP, which have abandoned some climate targets in recent months.
For this analyst, as long as “the financial costs of climate damage do not exceed the benefits,” the solution cannot come from economics.
“Only tangible, radical, global regulatory changes with significant financial consequences… can direct capital towards clean and sustainable energy,” she asserts.
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