Hurricane Katrina could add to fuel woes

| 8/29/2005

Along with the onslaught of media coverage of the storm itself, Hurricane Katrina also brought with it a wave of speculation as to the fate of U.S. oil supplies and the price of fuel.

Crude oil jumped in early morning trading Monday, Aug. 29 to $70.80 per barrel on the New York Mercantile Exchange before settling back down closer to the $67 mark in later trading. This marked the first time in history oil prices have ever gone beyond $70 per barrel.

What this will mean for fuel prices is anybody’s guess. Some experts were predicting that gasoline prices could surge over the $3 per gallon mark by the end of the week, while some rumors had diesel jumping to as much as $4 per gallon.

As of Monday, Aug. 29, however, price spikes at the pump had yet to surface on official reports. ProMiles reported a national average diesel price of $2.61, not a big change from the previous week. The highest average diesel prices were found in California, at $2.986 per gallon.

While the extent of the damage from Katrina wasn’t immediately known, oil companies shut down at least 600,000 barrels of daily oil production in the Gulf of Mexico as a result of the storm. Some news reports said that more than 40 percent of all U.S. crude oil production in the Gulf was shut down.

The oil rigs in the Gulf normally pump about 1.5 million barrels of oil per day, representing about 30 percent of all U.S. crude oil production and equal to about 2 percent of worldwide production.

Meanwhile, on land, seven refineries in Louisiana from the likes of Shell, Chevron and Valero Energy Corp. were shut down. Those refineries represented a combined capacity of 1.449 million barrels of crude oil, according to Reuters news service.

President Bush was said to be considering the release of oil from the U.S. Strategic Petroleum Reserve to help stem the rising costs, but he had not made a final decision yet as of midday Monday.

The reserve was opened last year following Hurricane Ivan, which did significant damage to oil platforms in the Gulf.

Samuel Bodman, U.S. Secretary of Energy, said in a statement on Monday that the Department of Energy is working closely with the White House to determine if and when the reserve can be opened. A decision is expected within the next day or two.

“We have been in close contact with our federal partners, site managers at various locations of the Strategic Petroleum Reserve, and companies that operate oil refineries to prepare for any disruption in oil production,” he said. “Over the next few days, we will continue to gain more information on the specific needs and then be able to make a better determination on how we can help.”

Insurance modeler Eqecat Inc. said the storm could cost insurers anywhere from $12 billion to $25 billion in total damages. Even at $25 billion, Katrina would not be as costly as 1992’s Hurricane Andrew, which, at $43.67 billion, remains the costliest storm in U.S. history.