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Katrina aftershocks: Biz roundup
Energy Secretary Samuel Bodman said Wednesday that the White House plans on tapping the nation's Strategic Petroleum Reserve to help refiners hurt by Hurricane Katrina. The move gave some relief to soaring oil prices.
Katrina aftershocks: Biz roundup
We'll see the effect at the gas pump almost immediately, but effects will continue to widen.
August 31, 2005: 4:32 PM EDT
Gas crisis looms
Experts fear near-term hit on economy from hurricane Katrina; say longer-term fallout less dire. (Full story in links in article on their site)
NEW YORK (CNN/Money) - As rescuers continue to try to save people trapped in New Orleans and get relief to those evacuated, Wall Street is looking at how the storm will affect business, the markets and the economy. Here's the latest news on how they are responding, and what market watchers should look for in the coming weeks.
Oil shortage
Energy Secretary Samuel Bodman said Wednesday that the White House plans on tapping the nation's Strategic Petroleum Reserve to help refiners hurt by Hurricane Katrina. (Full story) The move gave some relief to soaring oil prices.
The jump in oil prices was a boon for hedge-funds betting that the price of oil would rise. (Full story)
Gas, and the economy it fuels
Consumers can expect retail gas prices to rise to $4 a gallon soon, but whether they stay there depends on the long-term damage to oil facilities, oil and gas analysts said Wednesday. (Full story)
The devastation of Hurricane Katrina will also take a big bite out of job creation for months to come, analysts said, as companies spending more on energy spend less on hiring. (Full story)
Economists fear the hit to oil production could lead to a national gas shortage, but will be only a speed bump for the economy, currently cruising ahead at 3.3 percent. (Full story)
The president of the Federal Reserve Bank of Philadelphia said that Katrina would "slow but not stall" economic growth, noting that the U.S. economy has proven to be very capable of absorbing shocks. (Full story)
Corporate earnings
Analysts expect Katrina to take a big bite out of corporate earnings, except in the energy and construction sectors, as high energy prices hit consumer spending and corporate budgets. (Full story)
Corporations are contributing millions of dollars in relief aid to cope with the destruction left by Hurricane Katrina. See the list.
Insurance
Hurricane Katrina is expected to be one of the costliest U.S. storms for insurers, but risk forecasters are deeply split about the extent of the damage. Insured losses may total as much as $25 billion, but insurers' stocks have held up well, with the S&P insurance index falling less than 1 percent this week. (Full story)
Reinsurers may pay a bigger share of claims than in the 2004 hurricanes, analysts said. This is because Katrina is a single event, so insurers will pay only one deductible before reinsurance starts. That could prove costly for hedge funds with large investments in reinsurance. (Full story)
Airlines
Air travelers across the nation can expect to feel the effects of Hurricane Katrina, according to a report published Tuesday. (Full story)
S&P said reduced air travel to the region could push Delta Air Lines into bankruptcy and that lower demand and higher fuel prices will weigh on airlines generally. (Full Story) Top of page
We'll see the effect at the gas pump almost immediately, but effects will continue to widen.
August 31, 2005: 4:32 PM EDT
Gas crisis looms
Experts fear near-term hit on economy from hurricane Katrina; say longer-term fallout less dire. (Full story in links in article on their site)
NEW YORK (CNN/Money) - As rescuers continue to try to save people trapped in New Orleans and get relief to those evacuated, Wall Street is looking at how the storm will affect business, the markets and the economy. Here's the latest news on how they are responding, and what market watchers should look for in the coming weeks.
Oil shortage
Energy Secretary Samuel Bodman said Wednesday that the White House plans on tapping the nation's Strategic Petroleum Reserve to help refiners hurt by Hurricane Katrina. (Full story) The move gave some relief to soaring oil prices.
The jump in oil prices was a boon for hedge-funds betting that the price of oil would rise. (Full story)
Gas, and the economy it fuels
Consumers can expect retail gas prices to rise to $4 a gallon soon, but whether they stay there depends on the long-term damage to oil facilities, oil and gas analysts said Wednesday. (Full story)
The devastation of Hurricane Katrina will also take a big bite out of job creation for months to come, analysts said, as companies spending more on energy spend less on hiring. (Full story)
Economists fear the hit to oil production could lead to a national gas shortage, but will be only a speed bump for the economy, currently cruising ahead at 3.3 percent. (Full story)
The president of the Federal Reserve Bank of Philadelphia said that Katrina would "slow but not stall" economic growth, noting that the U.S. economy has proven to be very capable of absorbing shocks. (Full story)
Corporate earnings
Analysts expect Katrina to take a big bite out of corporate earnings, except in the energy and construction sectors, as high energy prices hit consumer spending and corporate budgets. (Full story)
Corporations are contributing millions of dollars in relief aid to cope with the destruction left by Hurricane Katrina. See the list.
Insurance
Hurricane Katrina is expected to be one of the costliest U.S. storms for insurers, but risk forecasters are deeply split about the extent of the damage. Insured losses may total as much as $25 billion, but insurers' stocks have held up well, with the S&P insurance index falling less than 1 percent this week. (Full story)
Reinsurers may pay a bigger share of claims than in the 2004 hurricanes, analysts said. This is because Katrina is a single event, so insurers will pay only one deductible before reinsurance starts. That could prove costly for hedge funds with large investments in reinsurance. (Full story)
Airlines
Air travelers across the nation can expect to feel the effects of Hurricane Katrina, according to a report published Tuesday. (Full story)
S&P said reduced air travel to the region could push Delta Air Lines into bankruptcy and that lower demand and higher fuel prices will weigh on airlines generally. (Full Story) Top of page
For more information:
http://money.cnn.com/2005/08/31/news/katri...
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Aug. 31 (Bloomberg) -- Gasoline futures rose as much as 13 percent after Hurricane Katrina shut oil refineries near the Gulf of Mexico, raising prospects pump prices across the U.S. will exceed $3 a gallon.
Some refiners and wholesalers are restricting the amount of fuel retailers can buy. Crude-oil prices fell after the U.S. announced that it would release barrels from the nation's Strategic Petroleum Reserve, and as the Louisiana Offshore Oil Port, the biggest U.S. oil import terminal, said that it planned to unload its first tanker since the storm.
``Release of the SPR isn't going to get the refineries back on line or get the electricity running,'' said Peter Beutel, an energy consultant and president of Cameron Hanover Inc. in New Canaan, Connecticut. ``Releasing the SPR is the best we can do, which is a sad commentary on our preparedness for this kind of disaster.''
Gasoline for September delivery rose 14 cents, or 5.7 percent, to close at a record $2.6145 a gallon on the New York Mercantile Exchange. Futures touched $2.92 a gallon, the highest intraday price since the contract began trading in 1984. Gasoline has more than doubled in the past year. The September futures contract expired today.
The contract today increased more than any other commodity.
Regular-grade gasoline, averaged nationwide, rose 1.5 cents to a record $2.619 a gallon yesterday, according to data released today by the AAA, the nation's largest motoring organization. Pump prices are 41 percent higher than a year ago.
Political Impact
Record pump prices are having a political impact on President George Bush's approval rating, according to a Washington Post-ABC News poll. Two-thirds of those questioned said gasoline prices are causing them financial strain. Bush's job-approval rating is at 45 percent, a decline of seven points since January and the lowest recorded in the poll.
U.S. Energy Secretary Samuel Bodman said that one release of oil from the reserve had been approved and that he is reviewing other applications. Tapping the reserve will do little to boost gasoline production.
Crude oil for October delivery fell 87 cents, or 1.3 percent, to close at $68.94 a barrel. Futures touched $70.85 yesterday, the highest since trading began in 1983. Prices are 64 percent higher than a year ago.
In London, the October Brent crude-oil futures contract fell 55 cents, or 0.8 percent, to close at $67.02 a barrel on the International Petroleum Exchange. Brent touched $68.89 a barrel yesterday, the highest for a contract closest to expiration since trading began in 1988.
Port Opening
``We have people on the platform and working to restore communication right now,'' said Mark Bugg, scheduling manager at New Orleans-based Loop LLC, the port operator. ``A tanker may dock this afternoon and possibly offload by this evening.''
The oil port stopped unloading tankers on Aug. 27 as Kristina approached. Port Fourchon in Louisiana, a staging area for workers who staff Gulf oil and natural-gas production platforms, opened this morning after damage was cleared.
Kerr-McGee Corp. said today that most of its facilities avoided serious damage and 55,000 barrels of daily oil and gas production was restored at production platforms.
About 30 percent of U.S. oil production comes from offshore platforms in the Gulf, while the region accounts for 24 percent of the country's gas output.
Lost Production
The storm shut 1.37 million barrels of daily crude-oil output, according to the U.S. Minerals Management Service, which manages offshore resources. The storm shut 8.3 billion cubic feet a day of gas production, or 83 percent of normal production and less than the 8.8 billion reported yesterday.
Natural gas for October delivery fell 18.7 cents, or 1.6 percent, to close at $11.472 per million British thermal units in New York. Futures touched $12.30, the highest since the contract was introduced in 1990. Prices have more than doubled in the past year.
Eight refineries in Louisiana and Mississippi were closed, halting at least 1.79 million barrels a day of refining capacity.
Valero Energy Corp. estimated that its refinery in St. Charles, Louisiana, will resume operations in one to two weeks, after it was shut Aug. 28 because of the hurricane and lost power. The refinery has capacity to process 245,000 barrels of crude a day. Valero also slowed processing at its plant in Krotz Springs, Louisiana.
Refinery Closures
ConocoPhillips, Chevron Corp., Motiva Enterprises LLC, Murphy Oil Corp., Marathon Oil Corp. and Chalmette Refining also closed plants over the weekend.
Shireman said major oil companies have stopped selling unbranded gasoline to independent retailers in Illinois and have cut back on contract allotments. He declined to say which companies were halting unbranded sales. The wholesale price he pays for gasoline has ``gone up about 80 cents a gallon in two days,'' he said.
Retail prices have now surpassed levels not seen for 25 years. Gasoline prices surged then because of the Iranian revolution of 1979 and the country's war against Iraq, helping send the U.S. economy into recession. Retail prices peaked at a nationwide average $1.38 a gallon in 1981, according to the Energy Department. That's about $2.95 in today's dollars.
Pipelines
Traders are watching the Colonial Pipeline, the world's biggest network of petroleum-product pipelines, which carries gasoline and distillate fuels from Houston to New York harbor. Colonial Pipeline Co., owner of the network, said today two lines shut on Aug. 29 because of power failures will be started this weekend. Distillates include heating oil and diesel.
``Once the refineries start making the product you have to transport it,'' said Mark Routt, a senior consultant at Energy Security Analysis, Inc. in Wakefield, Massachusetts. ``We have to watch the pipelines to the Midwest and the Northeast. The Northeast is less of an issue because we can get cargoes from Europe. Florida has a big problem because 60 to 70 percent of their gasoline is barged across the Gulf.''
``The biggest issue is getting power to these facilities,'' said Chris Ovrebo, a broker with FC Stone LLC in Eden Prairie, Minnesota. ``Most of these refineries didn't sustain heavy damage,'' he said. ``It's not going to take them six months to get back on line.''
No Power
About 1.4 million customers were without power late yesterday from Louisiana to the Florida Panhandle, down from more than 2.1 million earlier in the day, according to estimates from Entergy Corp., Cleco Corp. and Southern Co., the parent companies of utilities in Mississippi, Alabama and Florida.
An Energy Department report today showed a ninth straight weekly drop in U.S. gasoline supplies, as record prices did little to curtail demand at the pump. Gasoline inventories fell 508,000 barrels last week to 194.4 million. Crude-oil inventories declined 1.5 million barrels to 321.4 million, the department reported.
Supplies of distillate fuel rose 2.7 million barrels to 135.2 million last week, the report showed. It was the 15th straight increase and left stockpiles 7 percent higher than a year ago.
Heating oil for September delivery fell 2.29 cents, or 1.1 percent, to close at $2.053 a gallon. Futures touched $2.101 during the session, the highest in 27 years of trading on the exchange. Heating oil is 85 percent higher than a year ago.
To contact the reporter on this story:
Matthew Leising in New York at mleising [at] bloomberg.net.;
Mark Shenk in New York at mshenk1 [at] bloomberg.net.
Last Updated: August 31, 2005 16:06 EDT
U.S. taps oil reserves
By ROBERT MANOR
Chicago Tribune
CHICAGO - The government said Wednesday that it would tap the nation's Strategic Petroleum Reserve to make up for shortages caused by Hurricane Katrina, but analysts said more crude oil now will do little to lower gasoline prices.
Industry observers said retail gasoline could instead become much more expensive, with shortages appearing in some parts of the country.
"I wouldn't rule out $4 a gallon," said Marshall Steeves, an energy analyst with Refco Group. "There is a definite possibility of sporadic and regional shortages."
The government said it would loan petroleum stored in the reserve to oil companies that requested it. The reserve, a group of salt domes near the Gulf of Mexico, contains 700 million barrels of oil.
The announcement seemed to stabilize the petroleum market. Crude oil for October delivery closed at $68.94 a barrel, down 87 cents, on the New York Mercantile Exchange. Oil roared past $70 after Hurricane Katrina came ashore in the Gulf Coast early Monday.
But wholesale gasoline prices rose 14 cents to close at a record $2.6145 a gallon, the highest since trading began in 1984. Prices have doubled in the last year.
The devastation delivered by Hurricane Katrina is so widespread and involves so much of the petroleum industry's infrastructure that making more crude available won't lower retail gas prices, analysts said.
The problem is that too many refineries are out of commission. The hurricane hit at the end of the driving season, when gasoline inventories are especially low, and several major pipelines needed to move petroleum to refineries and gasoline to market are shut down.
The Energy Department reported that 10 gulf refineries remain shuttered, and the extent of their damage remains largely unknown. Four more refineries are on reduced operations.
Together, that has eliminated 12 percent of the nation's refining capacity at a time when every refinery in the country needs to produce flat out to meet demand.
Even if all the refineries are undamaged, which does not appear likely, it would be a week or so before they can begin production.
"From an engineering point of view, it's a big challenge to get them started again," said David Sykuta, executive director of the Illinois Petroleum Council.
Electricity is out in much of coastal Louisiana, Alabama and Mississippi. Refineries in areas that are blacked out cannot resume operation until power is restored, and it is not known when that will happen.
Meanwhile, three critical pipelines are also shut down.
Raymond Paul, spokesman for the Association of Oil Pipe Lines, said the Colonial pipeline, which runs from Houston to New Jersey, and the Plantation pipeline, which runs from Houston to northern Virginia, are closed because of problems at pumping stations. Those pipelines transport refined products like gasoline and jet fuel.
"We are hoping there isn't a run on fuel," Paul said, noting that the two pipelines are important suppliers to the East Coast.
In Illinois, Shell Oil's Capline pipeline is shut down. It transports petroleum from Louisiana to central Illinois.
"Because there is no electricity, the pumping shut down," said Shell spokeswoman Darci Sinclair. "I don't know when start-up will happen."
Among other refineries, Capline supplies the Marathon Oil Corp. facilities in Robinson, Ill., and Catlettsburg, Ky., which together can process 412,000 barrels of oil a day.
The Robinson refinery serves 400 independently owned Marathon and 125 Speedway SuperAmerica gas stations in Illinois, as well as gas stations in adjacent states.
Angelia Graves, a spokeswoman for the Marathon refineries, said output in the Midwest is "constrained." She gave no details on how much production was reduced without the Capline pipeline.
"The hurricane impacted more than just the Gulf Coast," Graves said. "This is a Gulf Coast-Midwest issue at this point."
Refineries in northern Illinois get much of their petroleum from Canada. But the economics of energy are such that a shortage of gasoline anywhere in the country leads to higher prices everywhere.
According to the AAA-Chicago Motor Club survey, the average for a gallon of regular gasoline in Illinois Wednesday was $2.723. Gasoline is always higher in Chicago, where many stations offered regular for a little more than $3 a gallon.
High gasoline prices should, in theory at least, depress demand and eventually lead to a drop in cost. The question is when.
Ed Ahnert is a longtime Exxon Mobil Corp. executive and now a faculty member of the Cox School of Business at Southern Methodist University in Dallas.
"If people think gas is going to $4 a gallon and stick there, then they are going to start making some dramatic shifts," Ahnert said. "But if they think it is a blip, not much will happen."
Something bad is happening to airlines, and there is little they can do about it. Jet fuel moves higher for the same reasons that gasoline does.
Difficulty delivering fuel to some airports combined with record prices could push some already financially strapped airlines closer to bankruptcy, analysts warn.
Northwest Airlines is trying to weather a strike by its mechanics, but the airline most at risk could be Delta Air Lines.
"Delta is already bleeding cash and at near-term risk of insolvency," said Standard & Poor's Philip Baggaley. "The added financial pressure may hasten an already likely bankruptcy filing, which will probably occur within weeks."
(Chicago Tribune correspondent Mark Skertic contributed to this report.)