Katrina could trigger $100 oil

Oil prices at 100 usd a barrel are no longer an unthinkable prospect in the aftermath of Hurricane Katrina and Asian demand is part of the reason, analysts said. Predictions by US investment bank Goldman Sachs in March that oil prices could rise to 105 usd a barrel were widely ridiculed, but the damage unleashed by the US storm has made others now consider it a possibility.

Oil prices have risen by more than 50% since the end of 2004 when they were trading at around 43 usd a barrel. The sharp spike in oil prices is attributed mainly to growing demand for oil globally, with the Chinese economy and strong US consumer demand singled out as the major demand drivers.

A pressing worry now is how much damage has been inflicted on US refineries in the Gulf of Mexico region, which accounts for a quarter of the country's total oil output. As of yesterday, more than 88% of daily Gulf crude production was shut down and nearly 79% of natural gas output halted.

As Hurricane Katrina slammed through the Gulf of Mexico, energy companies evacuated offshore workers and shut about 91 percent of the region's oil production, or 1.37 million barrels daily. Katrina ripped drilling rigs from moorings, damaged production platforms and curtailed pipeline shipments, idling 11 percent of U.S. refining capacity and leaving oil supplies vulnerable to another crisis.

"There isn't the global spare capacity out there to replace this loss if it continues for a prolonged period," says Bart Melek, a senior economist at BMO Nesbitt Burns in Toronto. "Already the market is tight as a drum, and if anything else happens, say instability in the Middle East, I wouldn't preclude $100 oil at all."

U.S. Energy Secretary Samuel Bodman emphasized the shortage of spare global supply, now less than 2 million barrels of crude oil a day, by saying the government would release oil from the nation's 700 million-barrel Strategic Petroleum Reserve to make up for the lost offshore production.

Natural gas prices rose to records above $12 per million British thermal units in New York because the production cutoff came as U.S. utilities were building inventories for use in the coldest months. "We could have a catastrophic failure of the oil and gas infrastructure going into the winter," said James Glickenhaus, who helps manage $1.2 billion at Glickenhaus & Co. in New York. Natural gas last winter cost $6.786 per million British thermal units. "Now it's almost double that."

Comments:

It looks like there were definite priorities at work. Doctors might have been working at hospitals which had no power for diagnostic equipment, for lighting, or for basic sanitation, but generating equipment was available to get America's oil pumping again.

The original estimates had been that it would be weeks or months before electric power was available to the various facilities, but after just one week we're mostly back in business.

According to the Oil & Gas Journal:
LOOP (Louisiana Offshore Oil Port) is now running at 100% except for its storage facility.
Colonial pipeline is now running at 100%.
Plantation pipeline is now running at 100%.
ConocoPhillips' St. Charles refinery is now fully operational.
Marathon's Garyville refinery is now fully operational.
Valero's Krotz Springs refinery is now fully operational.
Motiva's Convent refinery is restarted and expected to be fully operational this week.
Valero's St. Charles refinery is expected to restart this week.
Motiva's Norco refinery is expected to restart this week.

Still out of service (also from O&GJ):
LOOP's storage facility just needs power and expects to get it in about a week.
ExxonMobil's Chalmette refinery has water damage and needs power.
ConocoPhillips' Belle Chasse refinery has major damage and needs power.
Murphy's Meraux refinery is still assessing damage and needs power.
Chevron's Pascagoula refinery has power but has major damage.

Posted by Doug on September 07, 2005 at 05:16 AM SGT #