An ill wind for gas prices
Traders say that even though you're already paying for the hurricane season, the price could spike to $6 a gallon if catastrophe strikes.
By David Goldman, CNNMoney.com staff writer
Last Updated: June 1, 2008: 10:09 AM EDT
NEW YORK (CNNMoney.com) -- Batten down the hatches: hurricane season starts on June 1. It's expected to be a rough one, threatening to upend refineries and disrupt pipelines in the southern United States.
And that could send gas prices, already nearly 20% above what they were last year, soaring even higher.
That's what happened three years ago when the Gulf Coast was battered by two hurricanes - Katrina and Rita - in the span of a few weeks.
"With the market the way it is now, a move in crude because of a hurricane could really be exacerbated," said MF Global energy analyst Don Luke.
Peter Beutel, oil analyst at Cameron Hanover Beutel, said if a Katrina-like hurricane were to hit in July, gas prices could go as high as $5 or even $6.
"The last thing this market needs at this time is a hurricane, because we can't afford to lose any of our refining capacity at this point," said Beutel. "If anything bullish happens with the market in this state, it would make it go absolutely crazy."
Like any disruption to supply, when a hurricane takes out drilling platforms and refineries, supply and demand principles lead to a jump in crude oil gasoline prices.
But even before the start to hurricane season, speculative traders have started to send oil and gas prices higher in anticipation of a hit to supplies.
"We're already seeing a hurricane premium on gas of about five to 10 cents per gallon," said Alaron Trading energy analyst Phil Flynn. "Especially since Katrina, we've seen traders build that into prices."
The last huge gas spike caused by a hurricane happened in the late summer of 2005, when Katrina and Rita brought many Americans their first glimpse at $3 a gallon for regular gas. The destruction from Hurricane Katrina alone led gasoline prices to jump 46 cents, or 17%, in just one week to a national average of $3.11, according to the U.S. Energy Information Administration.
Though we may never again see two Category 5 hurricanes enter the Gulf of Mexico in the span of only a few weeks, it may not take a similar occurrence to see a similar boost in gas prices again. Oil prices have soared through the roof on seemingly any kind of bad news recently, so analysts admit that this hurricane season's effect on gas prices is difficult to predict.
On the other hand, if no hurricane hits this season, Beutel said gas prices may fall off a bit. But with hurricane season ending Nov. 30, we'll have to wait until December to find out.
"That would have some downward pressure on prices, but who knows where we'll be at that point - we could be a dollar higher or lower than where we are now," he said.
The perfect storm
The National Oceanic and Atmospheric Administration (NOAA) released its tropical storm forecast Thursday morning, saying there is a 65% chance of a stronger-than-average hurricane season and only a 10% chance that it will be weaker than normal. The outlook indicates a 60% to 70% chance of 12 to 16 named storms, with six to nine becoming hurricanes and two to five turning into major hurricanes.
But it doesn't take a strongly active hurricane season to cause major disruption to oil drilling and gasoline production in the Gulf.
"The makeup of a storm can have all the difference," said Flynn. "Slow moving storms have a tendency to churn up underground pipelines, so you don't need a category five to do a lot of damage."
Andy Radford, policy adviser for oil industry trade group American Petroleum Institute (API), said the average hurricane halts oil drilling production for over a week. Rig workers are forced to evacuate two to three days before the storm hits, and as soon as it's safe to return, they have to check for damage and restart production.
"When the offshore oil pumps get shut down, it takes a lot to get them back on," said Radford.
He said those big storms in 2004 and 2005 did considerable damage to oil drilling platforms in the Gulf of Mexico, severely cutting into supply to gasoline refineries on the shore.
Though slow-moving, weak tropical storms over the Gulf of Mexico can halt oil drilling, powerful hurricanes that hit land can knock out refineries. That's because about 40% of U.S. refining capacity is located on the Gulf Coast, namely in oft-hit states like Texas and Louisiana. After Katrina and Rita, 30% of Gulf Coast refineries were shut down or operating with reductions.
"Because refining of crude oil into gasoline and other oil products is critical to meeting our nation's daily energy needs, disruptions in these operations can have an immediate impact on the nation's gasoline supply and petrochemicals," said Royal Dutch Shell Plc (RDSA) spokeswoman Robin Lebovitz.
And even though NOAA predicted a high number of strong, named storms for the 2008 season, no one can tell whether or not they will make landfall.
"You can have a very active season but none will make landfall, or a very inactive season but they all hit land," said NOAA spokesman Dennis Feltgen. "There's no way to predict if they will hit yet, because that science just doesn't exist."
It's rare for a refinery to be totally knocked out by a hurricane, but many are susceptible to wind and water damage that can limit supply to and from the facilities. Similar to offshore drilling platforms, refineries are sometimes shut down for more than a week before they can return to full operability, according to API Refining Issues Manager Cindy Schild.
Part of the reason Katrina and Rita led to such a spike in gas prices was that there weren't enough functional facilities to make up for the lost output. Although capacity at many U.S. oil refineries has been expanded, there hasn't been a new refinery built in the United States in three decades
The insanity has got to stop somewhere.
Damn oil people just keep getting richer at our expense (https://www.getsmile.com/emoticons/heroes-smileys-64589/arab.gif)
SCARY :((
Yep, raising prices before a hurricane has even been spotted is sad. :((
Last year we could fill both motorcycles for under $6.00 Now it is over $11.00 to fill them both. But it sure is cheaper than filling my car up.
Quote from: harley89 on June 01, 2008, 01:08:15 PM
Last year we could fill both motorcycles for under $6.00 Now it is over $11.00 to fill them both. But it sure is cheaper than filling my car up.
I filled up yesterday. $61.00 girls18.gif
At our local Chevron, the pump automatically turns off at $60.00. It takes at least $70.00 to fill my van.
:(( wow and we have 3 full size vehicles girls18.gif
even scarry I have seen some projections at $8.00 per gallon.
i live out in the country i am getting a pony and cart
I heard this morning on my local news, that Georgia gas taxes may go up. I hope not our gas prices are already at $4.00 a gallon.
Quote from: Candyred32 on June 02, 2008, 05:30:01 AM
I heard this morning on my local news, that Georgia gas taxes may go up. I hope not our gas prices are already at $4.00 a gallon.
But, isn't it John McCain and Billary Clinton who are campaigning and saying that they want to put a temporary hold on gas taxes? And Obama saying that's not a good idea? I think gas taxes should be paid by the oil companies and they need to be regulated because like H said earlier, we are struggling at the pumps and the oil people are struggling to get all that money to the banks.
Quote from: Stinkerbell on June 02, 2008, 07:18:31 AM
But, isn't it John McCain and Billary Clinton who are campaigning and saying that they want to put a temporary hold on gas taxes? And Obama saying that's not a good idea? I think gas taxes should be paid by the oil companies and they need to be regulated because like H said earlier, we are struggling at the pumps and the oil people are struggling to get all that money to the banks.
I agree. Do they not think our gas prices are high enough.
We have a longtime family friend working for Chevron in Kazakstan (sp?) and he says there's enough oil there to supply the US for years... with NO Saudi oil.
Gas went down 10 cents in the past two days. :D
Quote from: Stinkerbell on June 03, 2008, 11:56:26 AM
We have a longtime family friend working for Chevron in Kazakstan (sp?) and he says there's enough oil there to supply the US for years... with NO Saudi oil.
You didn't tell me you knew Borat. :)) :)) :))
Quote from: Homer on June 03, 2008, 02:02:13 PM
You didn't tell me you knew Borat. :)) :)) :))
:{: :{: :))
The gas prices are totally insane. Here in CA, we are paying as of last night, at the cheapest station $4.25. In the morning it was $4.23. Forget the rest, I've seen them as high as 4.50. I asked my husband, if we should get a horse and buggy and he just laughed, but I'm serious. He said they'd probably tax us more on the horse and buggy.
Gas is going back up today...It went up .25 a gallon about an hour ago. girls18.gif
Quote from: SpunkyGirl on June 06, 2008, 12:48:09 PM
The gas prices are totally insane. Here in CA, we are paying as of last night, at the cheapest station $4.25. In the morning it was $4.23. Forget the rest, I've seen them as high as 4.50. I asked my husband, if we should get a horse and buggy and he just laughed, but I'm serious. He said they'd probably tax us more on the horse and buggy.
I paid $4.39 this morning - what a crock. And yes, someone in the oil industry would pass a bill saying the horses had to be rubbed down with a gallon of oil per day, or their shoes would have to be made with some kind of petroleum and they'd still have their hands in our pockets.
I've heard of people putting squid on their pizza... I definitely would watch out if I were you.
Well, I started a whole thread on this and should have posted it here instead...
While I am sympathetic to the plight of the Polar Bear, Caribou and Squid population in Alaska, there must be some way to drill for oil there and not kill off every living creature for miles around. As I mentioned before, the caribou are thriving now that the pipeline is up and running... but really. Where is this all going to end?
POLAR BEAR GETS FEDERAL PROTECTION
Statement of Betsy Loyless, Audubon's Donal O'Brien Chair for Policy and Advocacy
washington, DC, May 14, 2008 - "Federal protection for the polar bear sounds the alarm in the clearest way possible that global warming is here and needs to be addressed immediately. Our actions can save the polar bear or cause its extinction. Federal protection represents only the tip of the iceberg if Americans want to save the polar bear. Listing the bear as threatened is not going to save it if we continue to melt and drill its habitat.
"The polar bear has gone from an American icon of strength and beauty to a symbol of our imperiled environment. What will save the polar bear and protect us all is comprehensive global warming legislation that commits to reducing greenhouse gases and creating a clean energy economy."
MORE INFORMATION
Today, the U.S. Fish and Wildlife Service made official its proposal to list the polar bear as a threatened species. The decision to list is strongly supported by sound science. The USFWS made its determination after the U.S. Geological Survey released a series of reports last fall that concluded shrinking sea ice caused by global warming could eliminate two-thirds of the world's polar bears - and all of those in Alaska - in the next 50 years.
Polar bears spend most of their lives on sea ice. They use it to hunt ringed seals, their primary prey, and the only ice seal that lives under the frozen ice cap. Polar bears hunt ribbon and bearded seals in broken ice. The summer of 2007 set a record low for sea ice in the Arctic with just 1.65 million square miles, according to the National Snow and Ice Data Center at the University of Colorado.
The administration has blocked federal efforts to boost renewable fuels that would curb the rate of global warming, refused to participate in the Kyoto international accord that would cap global warming emissions, and has stood on the sidelines as Congress has begun moving comprehensive global warming legislation.
The administration has also aggressively pursued destructive oil and gas drilling in the Arctic, including some of the polar bear's most prized habitat. The most recent example came in last week's finalized 5-year offshore oil and gas leasing plan announced by the Interior Department that would allow oil companies to start drilling in the areas of Alaska's oceans that are most critical to the continued survival of the polar bear. Interior is selling leases for oil and gas development in 73 million acres of the Polar Bear Seas, comprised of the Beaufort and Chukchi Seas, which are estimated to support more than one-fifth of the world's population of polar bears.
Arctic sea ice has been in decline for decades and polar bears are dependent on it, and the ice seals associated with that habitat. All sea ice models predict at least 30 percent loss of late summer ice by mid-century and most predict ice-free conditions by the end of the century.
For more on the polar bear's plight, see Audubon Magazine's cover story in the latest issue at http://audubonmagazine.org/index.html.
wow thats cheep over here in the united kingdom we pay 6.50 english pounds a gallon girls18.gif
I think it is ridiculious, this raising gas prices constantly. Im sure glad i dont drive anymore, but i feel for my Son & people who do. Maybe we should put a motor & a basket on a bicycle LOL
This is nuts $11.25 to fill my riding lawn mower,time to buy a horse >:((
Got this today -
Posted: June 09, 2008
2:25 pm Eastern
By Jerome R. Corsi
© 2008 WorldNetDaily
NEW YORK – The Goldman Sachs energy analyst whose predictions have fueled worldwide oil price speculation now foresees oil peaking at $200 a barrel, with gasoline rising to $5.75 a gallon before consumption cools enough to lower fuel prices.
In an rare interview published today in Barron's, Arjun N. Murti, Goldman Sachs' 39-year-old top energy analyst, said energy is in the later stages of a worldwide "super spike," with the possibility of $150 to $200 a barrel oil likely over the next six to 24 months."
Murti noted oil analysts have shifted from a 1990s attitude of, "It is easy to grow supply," to today's pessimism, "It is going to be more difficult to grow supply." The change is in part because oil-producing areas, including Mexico and the North Sea, are declining, while growth areas such as Brazil and Angola are just coming online.
In the interview with Barron's, Murti stressed he does not believe the world is running out of oil, and he does not subscribe to peak oil theories that worldwide oil production rates are necessarily declining.
In Murti's view, the problem is worldwide oil demand is growing consistently, while supply is growing more moderately.
"We do think that the places that have large quantities of recoverable oil, notably Saudi Arabia, Iraq, Iran, Venezuela and Russia, aren't on track to grow their supply aggressively," Murti said. "And, to some degree, high prices are disincentivizing some of these countries to either open up their industry or spend the money themselves. These countries don't need the incremental revenue."
Morgan Stanley agrees, predicting oil will hit $150 a barrel by the end of June or the beginning of July.
Crude oil set a one-day record Friday, surging more than $10 a barrel, to settle at $138.54 on the New York Mercantile Exchange.
The price of crude oil on world future's exchanges has more than doubled in the past year.
Departing today on what is billed as his "farewell visit" to Europe, President Bush today blamed Congress for refusing to allow drilling in Alaska and offshore on the continental shelf, "to give this country a chance to help us through this difficult period by finding more supplies of crude oil, which will take the pressure off the price of gasoline."
Sen. John McCain has attacked Sen. Barack Obama's push for government incentives to develop alternative renewable fuels as government subsidies calculated to enrich special interests.
According to Stephen Power writing in today's Wall Street Journal, McCain favors scrapping federal ethanol credits, moving instead to develop more nuclear power plants.
"I have to give you straight talk about government subsidies," McCain told a business leader roundtable last month in Washington state. "When government jumps in and distorts the market, then there's unintended consequences as well as intended."
Obama has promised to invest $150 billion in alternative fuels over the next decade, with a requirement that the U.S. get at least 25 percent of its electricity from renewable sources, including wind, sun and geothermal energy by 2025, even though those resources today account for less than 1 percent of U.S. electricity.