click for larger photo
The bottom line impact of Katrina: Gasoline at $4. That is the highest I saw petrol at, admittedly on Labor Day weekend, in the Hamptons, premium full serve. Most of the rest of the stations I saw ranged from $3.39 to 3.69 for fuel.
I expect these prices to begin easing right away, and improve markedly over the coming weeks.
The NYT looked at the impact of the storm, and not surprisingly found pre-existing conditions ripe for a shock. Here’s the Ubiq-cerpt:™:
"For two years, steadily rising prices barely weighed on global economic growth, in part because of the expanding economies of China and the United States, and not from a lack of supply. The price of crude oil on the New York Mercantile Exchange doubled to $66 before the hurricane from $33 a barrel in January 2004. Demand, meanwhile, has grown by more than 2 percent annually over the last two years, twice the average annual pace over the preceding decade.
Then came Hurricane Katrina. With winds as high as 175 miles per hour, it shut down most offshore platforms and onshore wells in the region – which accounts for over a quarter of domestic oil production – and idled 10 percent of the country’s refining industry. Those assets may be out of commission for months while the industry scrambles to repair battered platforms and underwater pipelines. But the effects of the current crisis will be felt around the world for much longer.
In less than a week, gasoline prices have jumped by as much as 60 cents a gallon, with stations selling premium grades at an average $3 a gallon, according to AAA. On average, gasoline is 50 percent more expensive than it was last year. "We’re in uncharted territory," said John Felmy, the chief economist at the American Petroleum Institute, the industry’s main trade group. "We haven’t experienced something like this since the 1980’s."
Pre-Katrina, we heard many Economists claim that gasoline and oil’s impact would be muted due to its inflation adjusted cost, relative to the 1970s.
With post Katrina fuel now nearly at 1970s inflation adjusted levels, that situation has now obviously changed — will the dismal set do so also?
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Graphic courtesy of NYT
More NYT:
"One problem today is the supply of crude oil. Years of underinvestment
in exploration mean that producers now lack the capacity to bolster
production in any significant way to make up for intermittent
shortages. Even Saudi Arabia, which had millions of barrels of untapped
production capability in the 1980’s, is now pumping at close to full
capacity.But far more important for the current energy crisis, a lack of
refining capacity constrains the industry’s ability to turn crude oil,
even when it is available, into usable products like gasoline or jet
fuel.The nation’s strategic reserve is stocked with enough oil to last about
35 days, and refiners hold an additional 25 days’ worth of supplies.
But with hurricane-hammered refineries out of business for now, the
immediate pinch comes in turning oil into gasoline. The shortage of
refineries explains why gasoline futures surged 14 percent last week
while crude oil prices gained only 2 percent. Oil touched a high of
$70.85 on Wednesday and closed at $67.57 a barrel on Friday; gasoline
futures on Nymex, which touched $2.92 a gallon at midweek, ended the
week at $2.18."
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Be sure to see all of our Katrina overview (and related resources), including the Katrina/New Orleans Disaster Relief Aid page.
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Source:
Katrina’s Shock to the System
JAD MOUAWAD
NYT, September 4, 2005
http://www.nytimes.com/2005/09/04/business/04oil.html
Always seems that I comment on the oil ones…
Let me preface my comments with some information. I’m a huge fan of capitalism and low government regulation. There was almost nothing that Al Gore could have done to make me vote for him… but…
The one opinion of Al Gore’s that I respected more than any other was from his book “Earth in the Balance”. His statement that extreme gas prices may be one of the only solutions to the unending American demand was somewhat true. It was unfortunate that he turned away from these statements in the election, as gas prices put pressure on his positions. I do believe that his method of providing the pressure (taxes) was wrong, but agreed with the premise that we are too oil hungry, and prices needed to go up.
Several people in my company have purchased new cars since last weeks dramatic rise in gas prices. All of those purchases were based soley on the price of fuel. Most got about a 2 fold increase in economy. I’ve never seen anything like it, as most of these people are making well above the national income average.
The market seems to be calmed by the EIA pledge of 60 million barrels. Two caveats:
(1) Shipping of these supplies will take 2-3 weeks for the most part. In the meantime, pump prices will likely hold at current levels;
(2) 60 million barrels from IEA members seems like a lot, but the US consumes something on the order of 20.4 million barrels per day according to gov’t figures. A mere three days’ supply isn’t nearly enough to turn back the tide.
Stock markets are up right now–probably a sucker’s bounce based on stale (services ISM) data and the exaggerated hope of 60 million extra barrels. Wait till the post-Katrina data comes out for real action. Sorry folks, this skeptic ain’t buying!
Chad: How does the government raise the price of gas without raising taxes? Stockpiling?
If you want to see an argument that says (or can be taken to support the view) that oil and gas prices should be ten times as high as they are to encourage conservation, see James Kunstler’s, The Long Emergency.
http://www.rollingstone.com/news/story/_/id/7203633?rnd=1121636006239&has-player=unknown
People are snapping up Corollas and Civics in droves (I bought a Scion Xa), yet the Big Two And A Half are still aggressively pushing its large sport utility vehicles with “employee pricing.” Incredible.
why doesn’t our goverment build a couple refineries?
because federal govt aint in the refining biz.
Well, the government may set aside a closed military base or two for a future refinery. The concept of national sacrifice areas is still percolating through the bureaucracy.
Oil companies haven’t built refineries in the USA the last few decades because they didn’t believe they made economic sense. Part of it may have been NIMBY and “those damned environmentalists” but most of it was ledger book, straight capitalist cost-benefit decision-making. Besides, low refinery capacity is a good choke point for limiting supply and thus raising prices, doncha know.
All the new refineries in the world isn’t going to make any difference if there isn’t enough oil to supply them, either through declining production or competition with China, for instance.
Start making the shift now. This winter and fall will be expensive and cold, maybe even hungry too. Make your preparations for emergenices and disasters because New Orleans proves beyond the shadow of a doubt that the government isn’t going to be able to save you. You have to save yourself.
Why has no one considered the percentage of oil/fuel NOT being used due to this catastrophe? The hustle and bustle of large and small towns has stopped. The pleasure boats and lawnmowers no longer run, the many boats, trucks and busses of business have stopped. Many have died and many more have been displaced and no longer consuming fuel. This MUST ad up to Billions of gallons of fuel NOT consumed DAILY and for HOW LONG? Have fuel company just raised the priced to cover these losses? Seems the fuel companies always find a way to have a shortages in one way or another and everyone accepts there is one without question. My quest is to have these questions investigated. I do not have the power and investigation qualities many of you have. I ask you to be brave enough to seek theses answers and offer America these answers. . We the public put our trust in your hands to tackle these questions and expose the oil companies for what they are? My quest for the truth will continue until America has been offered these answers. If the squeaky wheel gets the grease, I tend on squeaking until the American consumer has answers!!
Kenneth Conn
Wilmington, NC
The decreased oil consumption of the 10,000 dead (all discussions of the impropriety of this issue aside) is insignificant relative to a country of the 300 million.
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Rehnquist may have died, but The Republican Nemesis still lives.
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Posted by: Dave from the Lake Effect Zone | Sep 6, 2005 12:16:37 PM
why doesn’t our goverment build a couple refineries?
Interesting question, first answered by the petro companies themselves: they have NOT been building new refineries, because they anticipate there will be LESS oil to refine.
Secondly: our present leaders are oilmen all, and they are making a lot of money due to this price spike, and market forces (greed) dictate that they do nothing to increase supply and therefore decrease demand (price.)
Say hello to your ass, and then kiss it good-bye. This is The Big One. I wish you well.
From my previous work in the petrol industry, I would say the price of gas went up because the market is based on future cost. So much is consumed that the oil is bought months in advance and there are mathematical models that calculate the current price–which makes it look like collusion but it’s not. It’s more like your insurance premiums going up right after you had an accident. No one person at a desk somewhere made that decision. A computer batch job that was written a year ago did.
I won’t name the company, but they made significant profits trading futures based on what they had on contract before, during, and en route in their fleet of tankers given time to market and current spot market prices.
Only thing I can guarantee for sure is lots more commercials telling that big oil is so eco-sensitive that our own executives personally mulch their coffee grounds in their suit pockets! That’s how much we love the planet!
Terp – They don’t. I didn’t agree with his premise that the govt should raise taxes or do anything to influence the price… but I did agree that the only way to reduce usage was to make it very prohibitively expensive to use.
Right now it’s not a supply issue as far as oil is concerned for refineries… and with prices at $60+ per barrel, many other alternate means of retrieving oil from the earth become profitable (like most of the oil sucked from beneath my state). The current gas prices are truely tied to refinery capacity and paranoia, for the time being. With other growing nations greatly surpassing our growth, I expect that may change.
Im not happy with the price of gas shooting up like it did, but I understand why it did. Now though with the refinerys back in operation, I think the country either needs to give an insentive to by Hybrid or high full economy cars, or help the people that can’t afford a car like that. I myself travel over 400 miles in a week and spend around $120 in gas every two weeks. Now Im in college and I work, but I dont have the money needed to buy a car that would help me out. I want to know what you think of the government helping people like me?