Daily Telegraph: Oil prices spiral as Katrina batters US: “Shell and others have had to abandon platforms.”: Tuesday 30 August 2005
By David Litterick in New York (Filed: 30/08/2005)
Oil prices soared above $70 a barrel yesterday as Hurricane Katrina hit the producing areas of the Gulf of Mexico, with forecasters saying it could be one of America's costliest storms.
Almost half the gulf's oil production was shut down as the winds approached, along with 20pc of natural gas production. Shell and others have had to abandon platforms.
Analysts feared the storm could also damage oil refineries, reducing the amount of capacity at a time when plants are at full stretch to meet surging demand.
Oil imports were also disrupted as the storm hit ports in Louisiana, while the oil flow along the largest US pipeline, which transports products from refineries in Texas and Louisiana to the cities of the east coast was slowed.
Late last week, the oil price had fallen back after meteorologists predicted the storm's path would take it far from the oil producing areas of the gulf, but a change in its course over the weekend sent oil to a record of $70.80 in overnight trading.
When the New York Mercantile Exchange opened yesterday, oil was still up $2.72 at $68.85, although it had slipped below $68.00 by early afternoon as traders said the region had escaped the "worst case scenario" many had feared.
The Gulf of Mexico accounts for about 1.5m barrels a day - a third of US domestic output. Washington said it may release oil from its strategic petroleum reserve if needed in the wake of Katrina.
It will be several days before the oil majors can assess the impact.
After Hurricane Ivan last year, about 4pc of oil production was offline for nine months. Nymex declared "force majeure" for August national gas contracts as a key distribution hub was closed.
It means those groups that have promised to deliver a certain amount of gas this month will be relieved of their obligations with no penalties.
Natural gas prices rose 19pc to more than $11.50 per million British thermal units.
The hurricane could cost insurers as much as $25billion, according to forecasting group Eqecat, making it the most expensive to hit the US. That record was previously held by Hurricane Andrew, which laid waste to much of Florida in 1992 and caused $21 billion of damage at today's prices.
Last year's four hurricanes cost insurers a total of $23billion. Ratings agency Fitch said the hurricane could result in the largest insured loss from a single event since the September 11 terror attacks.
Other commodity prices rose, with cotton prices being most affected as the crop in the Mississippi Delta was to be harvested as the storm hit.
Soy bean and corn crops, which have suffered from the worst drought in 15 years in some areas, are expected to be damaged, while damages to warehouses and ports could also drive up prices.
The US stock markets rose as gains for oil companies and home improvement groups offset weakness among the major insurers and tourism stocks. Allstate and St Pauls Travellers, the insurers with the greatest exposure to the region, were trading several percent lower.
Meanwhile, companies rallied behind the relief effort. Office Depot pledged $1m to the American Red Cross, while Anheuser Busch sent gallons of fresh water to the region.
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