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Oil and Gas Production Virtually Halted By Hurricane Katrina

Posted on: Monday, 29 August 2005, 21:00 CDT

Aug. 30--Hurricane Katrina brought oil and gas production in the Gulf of Mexico to a near standstill and slowed refinery operations in the region, likely triggering another round of gasoline price increases, analysts said yesterday.

President Bush was considering release of some crude oil from the government's 700-million-barrel petroleum reserve, the White House said. But analysts said that would do little to control prices of fuels like gasoline, whose supplies will tighten even further in coming days until refineries in Louisiana, Mississippi and Alabama resume full operations.

Seth Kleinman, an oil analyst at Washington-based PFC Energy, a consulting firm, said gasoline prices could jump by another 20 cents a gallon in coming weeks.

"This is a big deal," he said. "This is going to hurt."

The U.S. Department of the Interior said the storm reduced daily crude oil output in the gulf by 1.4 million barrels, or 92 percent. The region accounts for about 35 percent of U.S. oil production. The storm also reduced natural gas production by 83 percent.

The White House gave no indication of when a decision might be made on a release from the reserve. Some in Congress, including Sen. Chuck Schumer (D-N.Y.), urged the president to act now. There is precedent; the administration loaned 5.4 million barrels of oil to refiners after Hurricane Ivan, which hit the gulf last September.

In futures trading yesterday on the New York Mercantile Exchange, crude oil for October delivery touched a record $70.80 a barrel. But it receded to close at $67.25, up $1.12 from Friday's close, as damage, based on preliminary reports, seemed less than feared.

"Overnight the market priced in a catastrophe, but it doesn't look like that's actually what happened -- especially on the crude side," Kleinman said.

At local pumps yesterday gasoline edged up to a new record on Long Island, $2.682 for regular unleaded, in the daily survey done for the AAA. The average in the city was $2.756 for regular unleaded, slightly below the record. Premium in the city averaged $3.012.

Prices are about 30 percent above levels a year earlier.

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Source: Newsday, Melville, N.Y.

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