“This has the potential to be a real powerful storm, and after the damage cause by Katrina nobody’s taking any chances.”
The above quote comes from Justin Fohsz, a Starsupply Petroleum Inc. broker. He, like everyone else in the oil and gas industry, is focused intently today on the new storm threat, Hurricane Rita, trying to put together a plan against the disruptions it could have on an already negative situation.
“We’re one storm away from a big shock to the economy,” said Credit Suisse First Boston Economist Neal Soss. When Rita’s winds hit the 150 mph mark yesterday, just 5 mph below a maximum-intensity Category 5 storm, the oil industry braced itself for the possibility that this storm could be the one.
Gasoline and oil prices rose again in yesterday’s trading, as soon as traders learned that refineries throughout Texas were being evacuated to prepare for the expected path of Hurricane Rita. As important as Louisiana is to the oil and gas industry, it’s second to only one state — and that’s Texas. Twenty-six percent of U.S. refineries are located there, and about 74% of this capacity is at risk from the storm.
Obviously, the industry really doesn’t need another shock, and neither do consumers. “If [the Houston area] suffers the scope of damage caused to refineries in Louisiana by Katrina, ” Energy Security Analysis Inc. Analyst Rick Mueller predicts, “we could see rationing and queues at the gas pump. This is something OPEC can’t do anything to remedy.”
While many expect the storm won’t actually hit until Saturday, the effects are already being felt. Four hundred and sixty-nine oil platforms in the Gulf have been evacuated, 73% of oil production is blocked, and 47% of gasoline production is blocked.
And the effects extend way beyond America’s border. “Higher oil prices are a clear and present danger [to the world economy],” said Raghuram Rajan, the chief economist of the International Monetary Fund (IMF). In the IMF’s World Economic Outlook announcement yesterday, the IMF wasn’t subtle about the effects energy prices — and tropical storms — will have on the global stage.
The rise in energy prices “exacerbated by the catastrophic effects of Hurricane Katrina is an increasingly important offset,” reported the IMF& “oil price increases are thus unlikely to be benign going forward.”
Crude prices have increased almost 45% this year alone, impacting the production and population of every industrialized nation. If, or should I say when, prices continue to rise, no one will be able to ignore the impact they’re having on the world. If prices rise again sharply, which is inevitable should Hurricane Rita hit the Texas area with the ferocity that’s predicted today, every individual and every business will have to reassess the way oil and gas are used and make changes accordingly for the short and long term.
We have no choice but to wait and watch the Texas area to see what unfolds with Hurricane Rita. Until then, I encourage you to start thinking now about how you can maximize your energy dollars to prepare for what lies ahead.