Oil prices—which soared in anticipation of Hurricane Katrina and then retreated slightly yesterday after the storm made landfall—rose again this morning as work crews began to survey the damage Katrina wrought on the Gulf of Mexico region.
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In late morning trading Tuesday, crude oil futures prices went back up above $70 a barrel and momentarily hit an all-time high of nearly $71. This was after news that at least eight oil refineries accounting for 10 percent of total U.S. capacity were shut down due to the storm.
Many market watchers are now bracing for $3-a-gallon gasoline, perhaps within a couple of weeks. A lot will depend on how quickly oil production and refining can come back on line—and how quickly distribution systems for that fuel can be repaired.
A government report indicated that 615 of 819 oil platforms in the Gulf of Mexico had to be evacuated as a result of the deadly storm. That, in turn, shut down 91.7 percent of daily oil production—or nearly 1.4 million barrels of oil—in the gulf, according to the U.S. Minerals Management Service.
Of course, it wasn't just the oil and gasoline markets that were clobbered by Katrina. The hurricane, which flooded large swaths of New Orleans and other Gulf Coast communities, also shut down nearly 83 percent of daily natural gas production out in the gulf.
This is not an insignificant figure. According to an analysis by Merrill Lynch, the Gulf of Mexico is not only responsible for 32 percent of the oil production in the continental United States; it also produces 23 percent of all natural gas output for the lower 48 states. No wonder natural gas prices also set a record high earlier in the day.
