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Energy Production A Katrina Casualty
Crude oil futures traders work yesterday on the floor of the New York Mercantile Exchange, where oil prices hit record levels as Hurricane Katrina bore down on U.S. oil-producing regions.
(By Stephen Chernin -- Getty Images)
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But the prospect of extensive damage sent economists scrambling to lower their economic growth forecasts for the second half of the year. Global Insight Inc., a Massachusetts economic forecasting firm, outlined a best-case scenario in which Katrina pushes average gasoline prices to $3 a gallon for two months and shaves a half-percent off economic growth in the final three months of the year. But the firm's worst-case scenario has oil nearing $100 a barrel, gasoline at $3.50 a gallon and a recession possible by year's end.
"There is a real sense of foreboding about the economy now that Katrina has struck with full force," wrote Bernard Baumohl, executive director of the Economic Outlook Group LLC, a forecasting firm in New Jersey. "This storm will be the most devastating ever for the U.S. oil and refining industries."
Looming over such fears was the memory of Hurricane Ivan, a storm with less force that had far more market impact than analysts had predicted. Philip K. Verleger Jr., an oil market economist and fellow at the Institute for International Economics, said there are still oil platforms and pipelines that have not been fully restored in the wake of Ivan, which hit the gulf last September.
Jaffe cautioned that the seafloor off Louisiana's coast slopes more gradually than the Texas shelf hit by Ivan, so mudslides may be less severe. But the Louisiana coast is also more pivotal. The Plantation and Colonial pipelines supply gasoline to the entire Northeastern and Mid-Atlantic region from Louisiana, while the Explorer pipeline supplies the Midwest. Barges from Louisiana terminals supply Florida. In all, the gulf supplies 35 percent of U.S. domestic oil production.
"This is the knot where all the spaghetti is tied together," Verleger said.
The energy market was even tighter when Ivan struck, with spare oil production capacity down to as little as 1 million barrels a day, said James Burkhard, director of oil market analysis at Cambridge Energy Research Associates. But the market for high-quality oil -- the kind that fuels U.S. automobiles and airplanes -- is just as tight now.
When Ivan struck, most analysts thought energy prices were about to fall. But Katrina is striking when Iraqi oil exports have all but dried up, Venezuela remains tumultuous and analysts and traders are anticipating the worst, Jaffe said
"Put on your helmets," she said.
