The Congressional Joint Economic Committee has released their assessment of the full potential impact of Katrina.
Here are some of the highlights regarding energy costs:
– 1.4 million barrels per day of offshore crude oil production has been “shut in.” This represents about 91% of daily oil production in the Gulf.
– Natural gas production shut in is 8,345 billion cubic feet per day, or 83% of daily gas production.
– At least 7 drilling rigs are adrift and 8 refineries have been shut down. This development has been estimated to have idled between 1.8 and 2.3 million barrels a day of refining capacity, a little above 10% of the nation’s total.
– Katrina has disrupted the importation of 1 million barrels of crude shipped to refiners through the Louisiana Offshore Oil Port.
– Because the crude oil market is global in nature, effects on global oil prices from the millions of barrels per day of lost Gulf production will be spread out geographically and over time. This will reduce, somewhat, the near-term impact on crude oil prices.
– This is not true, however, of highly localized gasoline markets and the national natural gas market.
– The price of the near-term futures contract for crude rose $2.61 a barrel on August 30, reflecting pessimism about the consequences of Katrina for crude oil production; the January through March contracts rose to over $70 a barrel. In recent days, crude futures prices have subsided somewhat, reflecting an easing of concern about effects of shutdowns of petroleum platforms in the Gulf of Mexico.
– Crude prices are more than 50% higher today than a year ago, but would need to reach $90 a barrel to surpass the inflation-adjusted highs set in the early 1980s.
– Based on futures data, traders believe that crude oil prices will be around 6% higher in October than they would have been without the damage done by the storm.
– Retail gasoline prices have risen above $3 a gallon in many localities, and some analysts speculate that near-term retail prices in some localities could be pushed as high as $6 a gallon. Retailers have responded to the potential of severe near-term supply curtailments by increasing current prices to ration existing supplies.
– (However), based on futures data, traders believe that gasoline prices could be close to 20% higher in October than they would have been without the storm.
– Also based on futures data, traders believe that natural gas prices could be close to 18% higher in October than they would have been without the storm.
– The administration has responded to the energy difficulties that have arisen as a result of Katrina’s damage by using the Strategic Petroleum Reserve, as it was designed to be used, to ease temporary but serious production and delivery shortfalls resulting from a catastrophe. However, more crude will not provide much help in the near term from difficulties derived from the Katrina-induced shutdown of 8 refineries.
Here are some of their thoughts regarding a possible recession:
Will the energy price effects of Katrina put the U.S. into a recession? Most analysts agree that the answer is “probably not.” The event was a tragic special event. Historically, while difficult to measure, the impacts of major regional hurricane damage on the national economy have been minor. Lost production from the damage is often, over time, offset by increased production from rebuilding.
However, in contrast to most hurricanes, Katrina imposed substantial disruption in a region that accounts for around 25% of the nation’s oil and gas production.
To the extent that persistently elevated energy prices are born out in the future, we will increasingly see purchasing patterns in consumer durable-goods spending and business investment spending change, with substitutions occurring away from relatively energy-intensive goods toward more energy-efficient goods.
Offshore Magazine