- The Washington Times - Monday, August 29, 2005

Hurricane Katrina, targeted at the heart of America’s oil and refinery operations in the Gulf of Mexico, shut down an estimated 1 million barrels of daily production this weekend and threatened to curtail already-strapped refining activity.

The area is crucial to the nation’s energy infrastructure — offshore oil and gas production, import terminals, pipeline networks and numerous refining operations in southern Louisiana and Mississippi.

The Gulf is the source of about 30 percent of U.S. oil production and 24 percent of the country’s natural gas.

“If this thing knocks out significant quantities of refining capacity … we’re going to be in deep, dark trouble,” said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York.

The impact of the Category 5 storm was immediate last night when electronic trading resumed on the New York Mercantile Exchange, as crude oil futures spiked $4.50 per barrel, putting the cost above $70 for the first time since oil began trading there in 1983.



Gasoline futures soared more than 20 cents per gallon, higher than $2.12 per gallon, and natural gas was up $2.20 per 1,000 cubic feet in the opening minutes of trade. The “out-of-control” buying is spurred by the prospect that the region’s numerous refineries could be idled for weeks by flooding, power outages or both, said Peter Beutel, an oil analyst with Cameron Hanover.

“It’s not looking real friendly here. This is unmitigated, bad news for consumers,” Mr. Beutel said.

The U.S. has ample crude oil supplies, but refining capacity is extraordinarily tight.

“Forecasters are saying Katrina could do more energy damage than any storm in recent years,” Jason Schenker an economist with Wachovia Corp. in Charlotte, N.C., told Bloomberg News. “It’s not just that there’s going to be outages for the next couple of days. With shutdowns and damage at platforms and refineries, the bullish impact could be felt for the rest of the year.”

The market has been on edge for months, with traders and speculators buying on the slightest fear. With Katrina, all those fears could be realized, Mr. Beutel said.

“Basically I could spill a can of oil at my local gas station and you’d see the price of crude go up by $1 per barrel,” he said, predicting that futures likely would top $70 per barrel in coming sessions.

Crude settled at $66.13 a barrel Friday on the New York Mercantile Exchange, down $1.36 after hitting $68 last week.

The average price for all three grades of gasoline rose nearly 13 cents to $2.65 in the two weeks ending Aug. 26, said Trilby Lundberg, who publishes the semi-monthly Lundberg Survey of 7,000 gas stations across the country. The figures are not adjusted for inflation.

That follows an increase of nearly 20 cents in the prior three weeks.

Katrina had been expected to be inconsequential to the energy industry, with many traders selling Friday as the storm moved across Florida and was seen as moving north and striking the Florida Panhandle as a tropical storm with little impact. That changed Saturday, when the system gained power and charged west, directly into areas of offshore oil production.

The Louisiana Offshore Oil Port, which processes loads from tankers too large for mainland ports, evacuated all workers and stopped unloading ships Saturday morning said Mark Bugg, the terminal’s manager of scheduling. The LOOP, 20 miles offshore, is the nation’s largest oil import terminal and handles 11 percent of U.S. oil imports.

Chevron Corp., Royal Dutch-Shell Group, Exxon Mobil, BP, Valero Energy, Devon Energy, Apache and Murphy Oil are among energy companies that shut down Gulf operations over the weekend.

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