Oil prices slid yesterday as Hurricane Rita weakened and its course veered away from Houston -- the heartland of the U.S. refining industry -- raising hopes that the storm would not severely cripple gasoline production there at a time of tight national supplies.
As Rita barreled toward Texas's northern Gulf Coast, the Category 3 hurricane brought the region's economy to a standstill by shuttering seaports, airports, refineries, chemical plants, offices and restaurants -- turning major cities into ghost towns.
The storm's impact on the national economy will depend on how quickly the evacuated energy facilities can resume production, how energy prices are affected and how consumers and businesses react, analysts said yesterday.
If Rita passes and "if everybody is back to work on Monday, and the damage is not as bad as Hurricane Katrina, the impact will be local," said Stuart G. Hoffman, chief economist for PNC Financial Services Group. But, he said, if Rita causes lasting damage, so soon after Katrina, the two storms could amount "to a one-two punch" to the nation's economy.
By yesterday, energy companies had shut down major refineries capable of processing about 4 million barrels of oil a day, or 23 percent of the nation's capacity. Another 5 percent of the country's refining capacity remains idle due to damage from Hurricane Katrina, which struck the Gulf Coast of Louisiana, Mississippi and Alabama on Aug. 29.
Katrina initially shut down about 11 percent of the nation's refining capacity and damaged pipelines carrying gasoline from the Gulf to other regions of the country, causing pump prices to soar above $3 a gallon in parts of the country. Prices eased as refineries were repaired, capacity was restored and gas imports increased.
The loss of another 5 percent of refining capacity, for an extended period, could send gasoline prices to $4 a gallon, further reducing consumer spending on other items, said economists at Global Insight in an analysis yesterday.
Oil industry officials and analysts could not predict yesterday how Rita would affect gasoline supplies and prices. If the storm passes and the refineries restart with no damage -- a process that could take from several days to a week -- prices might increase only slightly, they said.
"How high prices rise and how long they stay elevated is still up in the air because we don't know what the ultimate damage is going to be," said Doug MacIntyre, an analyst with the Energy Department's Energy Information Administration.
Oil prices rose to more than $66 a barrel in recent days as Rita grew to a Category 5 hurricane and roared toward Houston. They started slipping as the storm shifted course and lost strength. Katrina was a Category 4 hurricane at landfall.
U.S. benchmark crude oil for November delivery closed at $64.19 yesterday, down $2.31 a barrel, on the New York Mercantile Exchange. Futures prices for gasoline, natural gas and home heating oil also closed lower.
"All we heard all week is doom and gloom and this is going to be the worst storm ever," said Philip Flynn, an analyst with Alaron Trading Corp. in Chicago. "Now it looks like it's not living up to the worst-case scenario."
Prices for gasoline, jet fuel and other oil products could still spike if the refineries that produce them suffer serious damage and are shut down for a long time, analysts aid.
As of last week, the country had enough stockpiled gasoline to satisfy U.S. demand for about two weeks, said Tancred Lidderdale, an analyst at the Energy Information Administration. However, some parts of the country could suffer shortages if gasoline pipelines are damaged or lose power -- as happened in the Washington area briefly after Katrina.
Following Katrina, oil companies abroad began sending more gasoline to the United States. Increased shipments likely would follow if Rita hobbles more refineries along the Gulf Coast, analysts said. Additional imports could ease supply problems and would help reduce prices.
Rita also threatens to further damage crude oil and natural gas production facilities in the Gulf. But lost oil production can be replaced from the U.S. Strategic Petroleum Reserve, which has occurred in the weeks since Katrina.
The bigger economic threat, analysts said, is the potential impact of the storms on energy prices.
Consumer spending rose strongly in the summer, as buyers snapped up houses, automobiles and other goods despite rising gas prices. But many economists expect such spending to slow as energy costs keep moving higher, interest rates keep rising and average wages for most workers lag behind inflation.
Because of Katrina, the U.S. economy will probably expand more slowly through the rest of this year and then rebound next year when billions of government, insurance and corporate dollars are poured into rebuilding, according to many forecasts.
"Hurricane Rita has the potential to make the immediate loss of growth much more severe, and to delay and dampen the rebound by keeping gasoline and natural gas prices higher for longer," Global Insight analysts concluded.
One of the big problems for many companies after Katrina was the loss of power and the flooding of many companies' emergency generators.
The region's utility, Entergy Corp., and its Texas and Louisiana subsidiaries mobilized 4,000 linemen and tree-clearers yesterday, some of them from neighboring power companies. The crews and equipment are hunkered down in Baton Rouge and other towns on high ground, where they are waiting to move in after Rita's initial onslaught, said Morgan Stewart, a company spokesman.
Rita was poised to strike the company's territory well before Entergy has recovered from Katrina. Stewart said about 212,000 customers in and around New Orleans still remain without power. Entergy's New Orleans subsidiary filed for bankruptcy yesterday after its electricity and natural gas systems sustained as much as $475 million in hurricane damage. Stewart said the filing by the subsidiary -- which covers 190,000 of the utility's 2.7 million customers -- would have no impact on the parent company's ability to respond to Rita.
Rita may well add to the hundreds of thousands of jobs estimated to have been erased by Hurricane Katrina. The Texas Gulf Coast is home to about 2.5 million workers covered by unemployment insurance, according to Stone & McCarthy Research Associates.
Airlines and other transportation companies will lose revenue from canceled operations. All commercial flights in and out of Houston's two main airports, Bush Intercontinental and Hobby, were suspended yesterday.
Amtrak suspended its Sunset Limited passenger service between Chicago and Los Angeles, Amtrak spokesman Marc Magliari said.
Rita's approach also shuttered dozens of large chemical plants along the Gulf in eastern Texas and western Louisiana, a development analysts said could tighten supplies of the specialty chemicals used to make garbage bags, paints, adhesives, cosmetics and a wide range of other products.
Most of the chemical plants along the Gulf are built to withstand hurricanes, analysts said. But restarting operations could be difficult if power remains out for a prolonged period. That could drive up chemical costs for manufacturers, which might in turn try to raise consumer prices.
Also at risk are the ports along the Texas Gulf Coast, which shut down last week in preparation for the storm.
"Right now, everything is just sort of on hold and business is expected to resume after the hurricane passes," said Aaron Ellis, a spokesman for the American Association of Port Authorities. "If they really get hit hard and operations have to cease because roads are impassable, costs will add up."
Staff writers Ben White, Sara Kehaulani Goo, Krissah Williams, Keith Alexander, Amy Joyce, Jonathan Weisman and Dina ElBoghdady contributed to this report.