Gas Could Top $3 This Weekend
Wednesday, August 31, 2005
Oil prices surged yesterday and gasoline prices were poised to top $3 a gallon by Labor Day weekend as oil companies and federal officials began assessing Hurricane Katrina's damage to the heart of the nation's energy production.
The powerful storm left the regional economy largely paralyzed yesterday across a swath of coastal territory in the Gulf of Mexico.
Nearly 3 million households, businesses and other customers were without power in Louisiana, Mississippi, Alabama and Florida, the Energy Department said. Telephone service remained erratic. Transportation of goods and people continued to be blocked by closed airports and seaports, flooded roads, and train tracks littered with debris.
Hurricane Katrina, recently downgraded to a tropical depression, could cause severe damage to the local and national economy if it seriously disrupts energy production for a sustained period, analysts said. The extent of the destruction was still unclear yesterday, as oil companies were having difficulty assessing the damage in an environment of power outages, impassable roads and disrupted communications.
The storm's effect on the nation's energy supply "is really the key to the impact on the economy," said Nigel Gault, U.S. economist at Global Insight Inc., a forecasting and research firm. "It is too early to tell. . . . We know what's shut down, but we don't know when it's coming back."
Katrina hit the Gulf states at a time when the regional economy has been thriving on rising energy prices and the national economy has been growing at a smart clip. U.S. energy company executives have reported soaring profit this year while complaining of labor and equipment shortages.
While the local economy will take a severe short-term hit, economists said the area will probably get a boost over the next year as insurance and federal money pours in to finance the reconstruction of homes, offices, roads, bridges, ports and other infrastructure. Workers from states with softer economies will probably flock to the area for the construction jobs. That occurred after four hurricanes last year in Florida, after the 1994 Northridge earthquake in Los Angeles and after Florida's Hurricane Andrew in 1992.
Such longer-term prospects were of little solace yesterday, as emergency workers continued to rescue and comfort the many families who suffered devastating losses of life and home.
Nationally, the clearest immediate economic impact was on oil prices, which climbed as the Energy Department reported that 95 percent of daily oil production in the Gulf of Mexico remained shut down by Katrina. More than a third of the nation's domestically produced oil normally comes from the Gulf.
U.S. benchmark crude oil priced for October delivery rose more than $3 a barrel to trade as high as $70.90 on the New York Mercantile Exchange before closing at $69.81.
Wholesale gasoline prices surged to levels that, if sustained, will translate to more than $3 a gallon at the pump within days, after typical retail markups are added, analysts said.
Stock prices fell as investors anticipated that higher energy costs will dampen consumer spending and corporate profit.