Crude oil prices climbed toward US$68 a barrel Thursday as hurricane Rita closed in on Texas, raising fears it would hit key production facilities along the US Gulf Coast that were largely untouched by hurricane Katrina's onslaught three weeks ago. The Category 5 hurricane with 265-kilometre-per-hour winds is expected to strike Texas, the heart of US oil production, on Saturday. More than 1.3 million people in Texas and Louisiana - including hundreds of oil workers - were ordered to evacuate. The region is home to 18 oil refineries that produce 23% of the country's petroleum products, according to the US Energy Information Administration. Nine of those facilities, representing 12% of US refinery capacity have shut. The US Minerals Management Service said Wednesday that 469 platforms in the Gulf are unstaffed, up sharply from 136 on Tuesday. More than 73% of oil production in the region is blocked, up from 58% Tuesday. Along with Katrina, Rita has the potential to deliver a crippling second punch in a one-two combination to the US energy sector that would drive prices to new records and cause even more economic dislocation. Though it remains several hundreds kilometres offshore, once-bitten corporate executives are already warning about Rita's potential destructiveness. Valero Energy chairman William Greehey said Rita's impact on offshore oil production and refining could be a “national disaster” and push pump prices well above US$3 a gallon. Given Rita's current track, forecasters believe it will make landfall south of Houston, where many of the refineries and terminals are located. But a modest shift north would result in a direct hit on critical oil infrastructure.
Economists said the hurricanes' one-two punch could drive energy prices into the stratosphere, sapping consumer spending and confidence. “We're one storm away from a big shock to the economy,” said Neal Soss, economist at Credit Suisse First Boston. “The shock to the economy from Katrina was bad enough. We have a very severe dependency on a very limited infrastructure because we haven't invested enough in refining capacity for a long time.” Rita's threatening entry into the Gulf of Mexico came as the oil industry was struggling to recover from Katrina's wallop, which shut down offshore rigs and several refineries, four of which have yet to restart. As the industry got production back on track, crude oil and gasoline prices had recently declined from the record post-Katrina highs. The EIA reported yesterday that retail gasoline prices dropped for a second successive week, to an average of $2.79 a gallon for regular unleaded from the peak of $3.07 two week ago. However, pump prices are expected to reverse direction as a result of a spike in crude and wholesale gasoline on the New York Mercantile Exchange this week. Yesterday, crude oil hit a two-week high of $68.10 a barrel before settling at $66.80 while the wholesale price of unleaded gasoline rose 7.65 cents to $2.0532 a gallon. The loonie also fluttered with the prospect of higher energy and commodity prices ahead, rising to a 13-year high of US85.87 cents before falling back to 85.46 cents. And Canadians just starting to see pump prices retreat after weeks of record highs should also brace for a return to higher gasoline costs due to Rita.
In a sign of growing frustration over surging oil prices, the head of the US Energy Information Administration, Guy Caruso, slammed OPEC for constraining production to keep prices high - days after the 11-member oil cartel pledged to make available an additional two million barrels daily to cope with high demand. “Without question,” Caruso said Wednesday when asked during a Senate Commerce Committee hearing whether OPEC has contributed to soaring oil prices. “OPEC policy has been to constrain production and collude ... Under the FTC definition of collusion and price-fixing, yes,” he said. The Organization of Petroleum Exporting Countries, responsible for a third of global output, promised earlier this week to make available an additional two million barrels daily, but its members have also said the problem was not with the amount of crude available but with refining capacity.
(Canadian Press 050921, 050922, Globe and Mail, National Post, 050922)