Although Hurricane Rita delivered far less devastation and loss of life than Katrina, it has left behind great uncertainty over its impact on oil and natural gas supplies. In an unusual Sunday trading session designed to calm the markets after Hurricane Rita, the price of crude oil futures fell sharply in response to the government's hopeful outlook on how the energy industry has weathered the storm. Still, Katrina forced a virtual shutdown of the nation's most important energy center, and most industry sources said damage was still being assessed.
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Before the storm made landfall, Paul Wilkinson, vice president for policy analysis at the American Gas Association, told U.S. News that the Texas-Louisiana border was perhaps the most worrisome impact point for the natural gas industry, since it's home to some of the nation's most productive wells. Of course, Rita roared directly over that hub, as well as Lake Charles, La., the main entry point for imported liquefied natural gas from abroad. (No matter what the eventual damage assessment, Wilkinson said the AGA was confident of adequate supply for winter–although at high prices.)
A Department of Energy spokesman said the federal government was "cautiously optimistic" about the post-storm state of the industry. And Texas Gov. Rick Perry said energy facilities received only "a glancing blow at worst." But since virtually all energy production facilities were shuttered prior to the storm, and can only be restarted safely after personnel return and test equipment, there was little definitive immediate information. Louisiana Gov. Kathleen Blanco said on CNN, for example, that there was a leak in a key Chevron pipeline at the Henry Hub natural gas supply point. But Chevron's Sabine Pipeline unit said it could not confirm that statement.
At least one refiner, Valero, said that it already saw "significant damage" at its Port Arthur, Texas, facility and that a restart could take up to a month. Since the nation's refiners were operating at nearly 100 percent capacity before the hurricanes to meet U.S. gasoline demand, analysts say any outages were likely to keep pump prices high.
Amid the uncertainty, the New York Mercantile Exchange's decision to open for trading Sunday generated controversy. Traders in the huge Houston energy commodities community complained they were likely to get shut out of the weekend market since they were all forced to evacuate. But Phil Flynn of Alaron Trading in Chicago said it was a "smart" move by NYMEX to avoid another surge of panic buying like the wave that drove oil prices above $70 per barrel after Katrina.
"The faster traders are able to react to the impact of the storm, the more level-headed the response will be," he said. Consumers, of course, will be watching to see if that calm in the markets prevails at the pump or whether dire prestorm predictions of gas at $4 to $5 per gallon turn out to come true.
Biz Buzz wraps up the day's market news and offers an agenda of upcoming economic news.
