A Blow to Fuel Supplies
The nation's energy industry, still a little woozy from Katrina, took another body blow from Rita. Consumers will feel it right away in higher gas prices and later in soaring home-heating costs. Indeed, as the storm rumbled inland, the severe damage to U.S. energy production was clear. Nearly 30 percent of the nation's oil-refining operations closed in preparation for Rita. Most rigs and platforms in the Gulf of Mexico halted operations--shutting down 28 percent of the nation's crude oil and 19 percent of its natural gas production. "This storm represents a heart attack to the U.S. energy center," Fimat Oil analyst John Kilduff told his clients.
Even the nation's emergency stores of oil--which happen to be in salt caverns along the Gulf of Mexico--were affected. Three of the four Strategic Petroleum Reserve sites were shut down well before Rita made landfall. Resources are so tight in the refining industry that any lost capacity will boost gasoline prices. Analysts expect pump prices to spike above $4 per gallon, with spot shortages like those seen after Katrina.
Natural gas could be harder hit. Its price surged on the futures market late last week, even as the price of crude oil began to recede as Rita weakened near landfall. Natural gas supplies can't be quickly augmented with imports. However, the American Gas Association said that "customers that rely on natural gas should feel confident the supplies will be there, although the prices will be high this winter." Many AGA members have used long-term contracts and hedging to reduce their risk, which could keep prices from skyrocketing. Still, many of them are predicting home-heating prices up 20 to 40 percent over last year.
Slowdown. Overall, the economy could lose some of its steam from the combined effects of two killer hurricanes, with growth dipping to a sluggish 2 percent. Worse, "this leaves us susceptible to some other shock, say a terrorist attack on Saudi oil facilities, which could tip us into recession," says Ross DeVol, director of regional economics at the Milken Institute in Santa Monica, Calif.
Even before Rita, consumers seemed rattled by Katrina. The index of leading economic indicators, released last week by the Conference Board, fell 0.2 percent in August from July. That's the second straight drop, which indicates economic growth was probably slowing before the storm ravaged New Orleans. "The September index will, undoubtedly, plunge," says Ian Shepherdson of High Frequency Economics. Of course, in the longer term, hurricanes tend to boost economic growth as billions of dollars are spent to replace and rebuild much of what the storms destroy.
For Detroit, Rita was another hit. Already, car sales are expected to nose-dive after a summer surge prompted by aggressive "employee pricing" discounts. Credit Suisse First Boston predicts that overall sales will fall at least 10 percent in September. But it might get worse as rising gas prices sting Motown more. Both Ford and General Motors are planning to roll out gas-guzzling SUV s this fall--hardly the product that consumers, battered by high gas prices from two hurricanes, will be looking for.
This story appears in the October 3, 2005 print edition of U.S. News & World Report.
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