Katrina's Oil Impact (and $4/gal gas)

Tuesday, September 06, 2005 | 06:38 AM

click for larger photo

The bottom line impact of Katrina: Gasoline at $4. That is the highest I saw petrol at, admittedly on Labor Day weekend, in the Hamptons, premium full serve. Most of the rest of the stations I saw ranged from $3.39 to 3.69 for fuel.

I expect these prices to begin easing right away, and improve markedly over the coming weeks.

The NYT looked at the impact of the storm, and not surprisingly found pre-existing conditions ripe for a shock. Here's the Ubiq-cerpt:™:

"For two years, steadily rising prices barely weighed on global economic growth, in part because of the expanding economies of China and the United States, and not from a lack of supply. The price of crude oil on the New York Mercantile Exchange doubled to $66 before the hurricane from $33 a barrel in January 2004. Demand, meanwhile, has grown by more than 2 percent annually over the last two years, twice the average annual pace over the preceding decade.

Then came Hurricane Katrina. With winds as high as 175 miles per hour, it shut down most offshore platforms and onshore wells in the region - which accounts for over a quarter of domestic oil production - and idled 10 percent of the country's refining industry. Those assets may be out of commission for months while the industry scrambles to repair battered platforms and underwater pipelines. But the effects of the current crisis will be felt around the world for much longer.

In less than a week, gasoline prices have jumped by as much as 60 cents a gallon, with stations selling premium grades at an average $3 a gallon, according to AAA. On average, gasoline is 50 percent more expensive than it was last year. "We're in uncharted territory," said John Felmy, the chief economist at the American Petroleum Institute, the industry's main trade group. "We haven't experienced something like this since the 1980's."

Pre-Katrina, we heard many Economists claim that gasoline and oil's impact would be muted due to its inflation adjusted cost, relative to the 1970s.

With post Katrina fuel now nearly at 1970s inflation adjusted levels, that situation has now obviously changed -- will the dismal set do so also?


click for larger graphic

Graphic courtesy of NYT

More NYT:

"One problem today is the supply of crude oil. Years of underinvestment in exploration mean that producers now lack the capacity to bolster production in any significant way to make up for intermittent shortages. Even Saudi Arabia, which had millions of barrels of untapped production capability in the 1980's, is now pumping at close to full capacity.

But far more important for the current energy crisis, a lack of refining capacity constrains the industry's ability to turn crude oil, even when it is available, into usable products like gasoline or jet fuel.

The nation's strategic reserve is stocked with enough oil to last about 35 days, and refiners hold an additional 25 days' worth of supplies. But with hurricane-hammered refineries out of business for now, the immediate pinch comes in turning oil into gasoline. The shortage of refineries explains why gasoline futures surged 14 percent last week while crude oil prices gained only 2 percent. Oil touched a high of $70.85 on Wednesday and closed at $67.57 a barrel on Friday; gasoline futures on Nymex, which touched $2.92 a gallon at midweek, ended the week at $2.18."

Be sure to see all of our Katrina overview (and related resources), including the Katrina/New Orleans Disaster Relief Aid page.


Katrina's Shock to the System
NYT, September 4, 2005

Tuesday, September 06, 2005 | 06:38 AM | Permalink | Comments (15) | TrackBack (0)
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Always seems that I comment on the oil ones...

Let me preface my comments with some information. I'm a huge fan of capitalism and low government regulation. There was almost nothing that Al Gore could have done to make me vote for him... but...

The one opinion of Al Gore's that I respected more than any other was from his book "Earth in the Balance". His statement that extreme gas prices may be one of the only solutions to the unending American demand was somewhat true. It was unfortunate that he turned away from these statements in the election, as gas prices put pressure on his positions. I do believe that his method of providing the pressure (taxes) was wrong, but agreed with the premise that we are too oil hungry, and prices needed to go up.

Several people in my company have purchased new cars since last weeks dramatic rise in gas prices. All of those purchases were based soley on the price of fuel. Most got about a 2 fold increase in economy. I've never seen anything like it, as most of these people are making well above the national income average.

Posted by: Chad K | Sep 6, 2005 10:43:52 AM

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