Oil Prices Brew Up a Storm Crude Hits Dollars-70 a Barrel As Katrina Batters Louisiana

HURRICANE Katrina, one of the most powerful storms ever to hit the US, slammed into the Louisiana coastline yesterday, sending hundreds of thousands of people fleeing the 145mph winds and sending the price of crude oil skyrocketing past dollars-70 a barrel.

However, in spite of the disastrous proportions of the storm, some companies – and investors – stand to gain millions from repair work in the months to come and from the surging price of oil itself.

As Katrina bore down on the numerous oil and gas operations along the Gulf of Mexico coast, which are responsible for roughly a quarter of US oil and gas production, an estimated one million barrels of refining capacity was shut down.

After battering ashore, the storm advanced towards lowlying New Orleans with extreme winds and the threat of a dangerous storm surge.

Fadel Gheit, an oil analyst with Oppenheimer & Co, said:

“You’re talking about an economic disaster.”

None the less, investors yesterday shrugged off the human catastrophe and the impact of the storm on oil production and focused instead on profits from the record oil prices.

Most of the top gainers on the New York Stock Exchange yesterday were oil, gas and oil field service companies.

Wood Group, the Aberdeenbased oil and gas services firm, has a substantial presence in the Gulf of Mexico, but declined to comment on any financial benefits it might reap from post-storm work. Its shares on the London Stock Exchange were not trading yesterday because of the bank holiday.

Aspokeswoman said: “At the moment, we’re primarily concerned with the human catastrophe of this storm.”

The region is crucial to the US’s energy infrastructure, with its offshore oil and gas production, import terminals, pipeline networks and refineries throughout southern Louisiana and Mississippi.

At least half of the region’s oil production, a quarter of gas operations and eight refineries along the coast were shut.

Light, sweet crude for October delivery on the New York Mercantile Exchange surged as much as dollars-4.67 a barrel in electronic after-hours trading in Singapore early yesterday morning to hit a record high of dollars-70.80 a barrel.

By midday, it had slipped back to dollars-69.21 in European trading – although that was still up dollars-3.16 from its close on Friday in New York.

However, in later trading in New York yesterday, as the storm was downgraded to a still-fierce category 3, crude futures were hovering around the dollars-70 mark.

North Sea Brent crude was not trading yesterday because the International Petroleum Exchange in London was also closed for the bank holiday.

Meanwhile, the massive storm is likely to wreak havoc on the results of the many oil companies which operate in the region, but analysts said the storm’s potential damage to facilities was more worrying.

Despite the slight easing, Katrina threatens lasting damage to vital US oil and refining assets, further straining an industry that has struggled to keep up with two years of rapidly rising oil demand.

“We can expect two months of lost production, ” said David Thurtell, at the Commonwealth Bank of Australia.

Observers said the full extent of the damage and how long it will affect supplies will only be known after the storm clears.

Some oil companies will be badly hurt from the production cuts and property damage that will leave them temporarily unable to capitalise on the ever-higher oil prices. Others, however, will benefit, said Gheit.

The most immediate impact will come from refinery closures, given that spare refining capacity in the marketplace is almost zero.

“Obviously, what is really down the line is the damage, and it could be hundreds of millions if not billions in infrastructure damage, ” Gheit said.

However, he added that all of those losses would be insured so that the industry would end up recovering in the longer term what it loses in the short term.

Those which stand to benefit include oil firms with no gulf exposure, which can take advantage of high oil prices without recovery costs.

Gheit added that some companies “are going to be printing money at will”.