Storm Fears Push Oil Past $70
Sunday, August 28, 2005
NEW YORK — With crude oil prices already near record levels, Hurricane Katrina (search) targeted the heart of America's oil and refinery operations Sunday, shutting down an estimated 1 million barrels of refining capacity and sharply curbing offshore production in the region.
It is an area crucial to the nation's energy infrastructure — offshore oil and gas production, import terminals, pipeline networks and numerous refining operations throughout southern Louisiana and Mississippi.
The impact was immediate Sunday night when electronic trading resumed on the New York Mercantile Exchange (search), 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.
The Category 5 storm was still churning in the Gulf of Mexico but was on a path to hit New Orleans early Monday.
Last September, Hurricane Ivan (search) also swept across the region causing heavy damage and reducing the region's output for months.
Katrina's winds were fiercer.
Oil companies evacuated workers and shut down more than 600,000 barrels of daily production in the Gulf. Refiners closed down more than 1 million barrels of refining output by Sunday, but that amount could be higher because not every producer reports data, said Peter Beutel, an oil analyst with Cameron Hanover.
"This is the big one," he said. "This is unmitigated, bad news for consumers."
Gasoline futures soared more than 20 cents per gallon, above $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, Beutel said.
The U.S. has ample crude oil supplies, even if major hurricane destruction trims Gulf oil output and foreign imports, but refining capacity is extraordinarily tight. As a result, prices for gasoline, heating oil, jet fuel and other products have flirted with records and could go even higher this week.
"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 market has been on edge for months, with traders and speculators buying on the slightest fear. With Katrina, all those fears could be realized, 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.
Crude settled at $66.13 a barrel Friday on the New York Mercantile Exchange, down $1.36 after hitting $68 last week.
On Friday, Katrina had been expected to be inconsequential to the energy industry, with many traders selling. That all changed Saturday, when the system gained power and charged west, directly toward areas of offshore oil production.
ChevronTexaco Corp. completed evacuations of all workers in the eastern and central Gulf of Mexico and nonessential workers in the western Gulf late Saturday, company spokesman Matt Carmichael said.
Chevron has about 2,100 employees and contractors working in the Gulf, Carmichael said. Chevron will continue to produce 90 percent of its normal production by remote as long as weather cooperates, he said.
The Louisiana Offshore Oil Port, which processes loads from tankers too large for mainland ports, evacuated all workers and stopped unloading ships on 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.
Royal Dutch-Shell Group evacuated more than 1,000 offshore workers by Saturday. Only those in the far west remained, the<
