World oil prices fell Monday as energy traders concluded that Hurricane Gustav is unlikely to pack anything like the one-two punch to the nation’s oil and gas infrastructure delivered by Katrina and Rita in 2005.
Although a full accounting of the damage to oil rigs, refineries and drilling platforms in Gustav’s path will take a few days, early signs were that the damage will not approach the devastation of three years ago. Prices at the gas pump, already 43 cents off July’s record national average of $4.11 a gallon, are also expected to hold steady or increase only slightly, experts said.
“There was an expectation of a certain strength, but the storm hasn’t been that strong,” Oil & Gas Journal Editor Bob Tippee said in an interview on CNN. “The sense now is that the storm isn’t the monster that people thought it would be.”
Oil prices, which hit nearly $117 a barrel early Monday in Asian markets as Gustav made its way toward the U.S. coast, retreated to just over $111 a barrel, while wholesale gas prices fell more than 10 cents to $2.75 a gallon.
Louisiana Gov. Bobby Jindal on Monday called for the federal government to release some of its emergency crude oil supplies to the market, saying state drivers could soon face shortages.
“We think it is necessary,” Mr. Jindal told reporters in Baton Rouge, La. “We know we are going to need this fuel by Thursday.”
The Energy Department has said it is ready to tap the Strategic Petroleum Reserve if severe shortages emerge.
Gustav is certain to have some negative impact on energy supplies and prices. More than a quarter of all U.S. refining capacity is located along the Gulf of Mexico coast directly in the storm’s path. Power outages are expected to keep many refineries shut down for several days.
Gustav already had been downgraded from a Category 3 to a Category 2 hurricane when it slammed into the coast near Port Fourchon, La. There are more than 600 oil platforms within a 40-mile radius of the small but vital port, equivalent to about 75 percent of the Gulf of Mexico’s drilling operations.
Among the companies reporting they had shut down facilities were BP PLC, Chevron, Royal Dutch Shell, Marathon Oil and Valero, the country’s largest refiner. All told, according to Platts, the energy market tracking newsletter published by McGraw-Hill, about 2.4 million barrels of refining capacity have been affected, equal to about 15 percent of the U.S. total capacity.
Although the damage and disruptions from Gustav are severe, they pale in comparison to the havoc wreaked by Katrina and Rita.
Between them, the two 2005 storms damaged more than 100 pipelines, destroyed or impaired nearly 150 drilling platforms and shuttered some of the country’s biggest refineries for months.
But Rita and Katrina hit at a time when world oil prices were trading at about $60 a barrel, and the supply and refinery shocks produced an instant spike in prices.
But after world prices nearly touched $150 a barrel earlier this year, U.S. and world demand have fallen, easing price pressures in the market.
Ministers of the Organization of the Petroleum Exporting Countries are set to meet next Tuesday in Vienna, Austria, with some concern among member countries that energy prices are falling too fast. Iran has taken the lead in pushing for a cut in supply to keep the prices high.