With Hurricane Rita aiming to make landfall in the Gulf of Mexico, oil suppliers are bracing for the worst-case scenario that the Category 4 hurricane could slam into Houston—a nerve center for U.S. refining capacity—or other concentrated areas with refineries.
Hurricane Rita is slated to make landfall on Friday or Saturday, almost four weeks after Hurricane Katrina hit. Energy traders went on a buying binge on Monday, shooting up crude oil by about $4 per barrel. The Wall Street Journal today reported that light, sweet crude oil rose $1.45 at $67.75 a barrel on the New York Mercantile Exchange.
“The markets now are in panic mode and heavy on buying because people want to have the commodity just in case,” Denton Cinquegrana told FleetOwner. “As bad as Katrina was, this has the potential to be worse because there are more oil refineries near Houston. Refiners right now are preparing for the hurricane by ramping down production to have a controlled shutdown.”
Since Katrina, several refineries in Louisiana and Mississippi remain shut down, with some restarting. The Wall Street Journal reported that 5% of U.S. refining capacity remains offline, with an additional 13% threatened by Rita. On the bright side, Chevron has reported that it repaired a hurricane-damaged product berth at its Pascagoula, MS, refinery and is now transporting refined product.
“There’s still several refineries still down since Katrina-- those are the ones near New Orleans and in Pascagoula, in particular,” Cinquegrana said. “They still haven’t restarted and are still digging themselves out.”
Entergy, which delivers electricity to 2.7 million customers in Arkansas, Louisiana, Mississippi and Texas, said that Hurricane Rita could slow down Katrina restoration if its resources have to be diverted. Power outages had been a factor as black outs halted refineries when Katrina struck.
Since Katrina, the Bush Administration has tapped the Strategic Petroleum Reserve, to lend crude oil to refiners. The move, while helpful in settling investors, does little to increase the supply of finished product from there.
“There is plenty of oil to refine— there are just not enough refineries to process it all,” Cinquegrana said.
Indeed, any additional damage to the energy infrastructure could bring far-reaching consequences to U.S. economic growth. Economists have already predicted that Katrina alone will slow down the gross domestic product (GDP) growth rate by 0.5- to 1%, mainly driven by energy price run-ups crimping consumer spending power.
See KATRINA UPDATE: GDP growth will slow.
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