New York – With crude-oil prices already near record levels, Hurricane Katrina targeted the heart of America’s oil and refinery operations Sunday, shutting down an estimated 1 million barrels of refining capacity and sharply curbing offshore production in the region.
It is an area crucial to the nation’s energy infrastructure – offshore oil and gas production, import terminals, pipeline networks and numerous refining operations throughout southern Louisiana and Mississippi.
The impact was immediate Sunday night when electronic trading resumed on the New York Mercantile Exchange, as crude-oil futures spiked $4.50 a barrel, putting the cost above $70 for the first time since oil began trading there in 1983.
Last September, Hurricane Ivan swept across the region, causing heavy damage and reducing oil output for months, but Katrina is even fiercer.
Oil companies evacuated workers and shut down more than 600,000 barrels of daily production in the gulf. Refiners closed down more than 1 million barrels of refining output by Sunday, but that amount could be higher because not every producer reports data, said Peter Beutel, an oil analyst with Cameron Hanover.
“This is the big one,” he said. “This is unmitigated bad news for consumers.”
Gasoline futures soared more than 20 cents a gallon, above $2.12 a gallon, and natural gas was up $2.20 per 1,000 cubic feet in the opening minutes of trade. The “out of control” buying is spurred by the prospect that the region’s refineries could be idled for weeks by flooding, power outages or both, Beutel said.
The U.S. has ample crude-oil supplies, even if Katrina’s destruction trims gulf oil output and foreign imports, but refining capacity is extremely tight. As a result, gasoline, heating oil, jet fuel and other products have flirted with record prices and could go even higher this week.
“If this thing knocks out significant quantities of refining capacity, we’re going to be in deep, dark trouble,” said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York.
The market has been on edge for months, with traders and speculators buying on the slightest fear.
Crude settled at $66.13 a barrel Friday on the New York Mercantile Exchange, down $1.36 after hitting $68 last week.
On Friday, Katrina had been expected to be inconsequential to the energy industry, with many traders selling. That all changed Saturday, when the system grew and charged toward areas of offshore oil production.
