Oil Prices Surge As Producers Tally Losses
Aug. 31–Crude-oil prices spiked to a new high Tuesday, as traders grew increasingly concerned about the amount of damage Hurricane Katrina did to the nation’s energy infrastructure.
The run-up in trading prices doesn’t directly affect retail prices, but the market’s jittery climb suggests U.S. consumers are about to see another surge in gasoline prices.
“We are certainly going to see higher gas prices this week,” said Justin McNaull, a spokesman for AAA. “It is hard to tell how much they will go up.”
Late Tuesday, oil companies were still assessing the state of their offshore drilling platforms, the vast system of pipelines that pump petroleum ashore, and the refineries that convert crude into gasoline, jet fuel and heating oil.
Fearful that domestic production may be crimped for several weeks or months at a time when the system was already straining to meet demand, traders bid the October futures contract for crude oil up $2.61 a barrel, to a record-high close of $69.81.
The hurricane’s blow comes at a time when U.S. refineries have been running flat-out to keep up with demand.
While engineers from big oil companies flew over half-flooded refineries looking for damage Tuesday, some industry observers were predicting petroleum could soar to $80 a barrel.
At the most fundamental level, the hurricane has pinched the nation’s supply of home-grown production.
As Katrina approached the Gulf Coast over the weekend, oil companies shut down and evacuated hundreds of production platforms and drilling rigs.
Those shutdowns eliminated 1.37 million barrels, or 92 percent, of the gulf oil fields’ daily production, said federal officials; hurricane-related closings also took 83 percent of the area’s natural gas production offline.
The effect will be significant: The Gulf Coast area where Katrina struck pumps about one of every three barrels of oil produced in the U.S.
The storm also forced the closing of the Louisiana Offshore Oil Port, the nation’s largest facility for receiving tankers carrying imported oil.
“This is an extremely serious situation,” said Tom Kloza, director of the non-profit Oil Price Information Service.
Potentially even more damaging to the nation’s energy picture, however, is the possibility that Katrina’s winds and floods have caused long-lasting damage to gulf-area refineries.
Eight refineries have either shut down or curtailed production, reducing the nation’s total refining capacity by between 8 percent and 10 percent.
How long those facilities will be shuttered remains unclear. In wholesale markets on the Gulf Coast, gasoline was priced as high as $2.85 a gallon; in the Midwest, prices were as high as $2.65. Because retail prices run about 60 cents above wholesale, consumers in those areas could be paying more than $3 a gallon for gas in coming months.
Natural gas futures moved sharply higher Tuesday, as did futures for heating oil, as investors bet that fallout from Katrina will force consumers to pay more to stay warm this winter.
Underscoring the magnitude of the storm’s fury, some oil companies were still looking for their offshore drilling rigs. At one point Tuesday, the Coast Guard reported that seven such platforms were drifting in the gulf, yanked free of their seafloor moorings by Katrina’s winds. Some were found.
Katrina’s damage to the nation’s already stretched oil supply caused speculation that the Bush administration might open the Strategic Petroleum Reserve, an emergency stockpile the government keeps on hand in case of an energy crisis.
Bart Melek, a senior economist at BMO Nesbitt Burns, said that oil prices would stabilize if President Bush authorizes the release of crude from the reserve. Others argue that such a move would be of little help, because the nation’s biggest problem right now is a shortage of refining capacity.
The White House has said it would be willing to release some oil from the reserve if oil-industry players ask it to. An administration spokesman said Tuesday that the government is “considering” one such request.
By James P. Miller and Robert Manor
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