“[Hurricane Katrina] is worse than 9/11 in terms of the economy impacts.”
So says Aspen, Colorado Energy Economist Philip Verleger. If his predictions come true, we could see gas prices double in the next six weeks and consumer spending grind to a halt.
On Monday, oil prices surged past the $70 mark on supply fears, and gasoline customers are already reeling at the effects. Almost overnight, gas prices have jumped up $0.25 to $0.30 per gallon or more in the United States and about $0.20 to $0.25 per liter in Canada.
For many budget-strapped customers, gasoline for their automobiles has become a luxury they simply can’t afford. In the 1970s, we saw a similar phenomenon, whereby supply shocks forced oil prices to rise to the point where recession hit. Energy experts are now experiencing a little déjà vu.
Here’s what just a handful of pundits are saying:
Wal-Mart Stores Inc. Chief Executive Lee Scott said, “From the energy perspective, there is no good news in this for anyone,” on Tuesday.
Federal Reserve Bank of Atlanta Director of Research Rober Eisenbeis told reporters, “The supply shock side is where you get more of a significant impact.”
AAA Spokesman Geoff Sundstrom said, “This is going to have a nationwide effect.”
Pickering Energy Partners President Dan Pickering commented, “We shouldn’t be surprised that unleaded gasoline is up 20% in two days… If there are actually physical problems at the refineries, you could be real, real tight at the refineries really fast.”
He added to this statement by saying, “What you don’t have in the system is the ability to run every car full of gas. If you get a hoarding mentality among the consumers, then it tightens the system even further. Fear of shortage begets the shortage. It becomes a vicious circle.”
“It is utter chaos right now,” said Cal Dive International Inc. Supply Manager Carl Thornton.
On Tuesday, Florida Lieutenant Governor Toni Jennings urged all drivers to avoid driving unless absolutely necessary. Chevron Corp is rationing its gasoline to wholesalers.
Adding to the problem is the fact that Venezuela and Mexican crude oil exporters, America’s closest suppliers, are already working at full capacity — meaning they cannot assist the United States in alleviating the shortfall.
Seven major oil refineries in the United States, that represent 1.7 million barrels a day of crude oil processing, were still closed as of yesterday. The experts are saying that approximately 10% of U.S. refining capacity is out of commission for the foreseeable future — and this will affect consumers across the country and around the world.
Before Katrina hit, OPEC had already been expressing concerns that it might be unable to meet the expected global demand of 85.9 million barrels per day for this winter — and surely a drop of almost 2% of that figure here at home is going to have major ramifications in the world energy market.
The U.S. economy will be hit hard by this “Act of God” — to a magnitude we cannot yet estimate. This may put a big hitch in Greenspan’s plans to keep raising interest rates this year, and, furthermore, it may represent the final push of the already weak American economy over the cliff into an ugly valley called “recession.”