Last March, the investment bank of Goldman Sachs predicted crude oil prices could rise to $105 per barrel. They were widely ridiculed. Now, after Katrina, that prediction is looking more and more possible.
Several analysts say the effects of the hurricane, plus Asian demand for oil, make the higher price no longer unthinkable.
Some skeptics regard oil prices like a bubble waiting to burst after hitting a record last week of $70.85 a barrel when Katrina wreaked havoc on the oil-producing Gulf Coast region, and it isnt going to drop any time soon.
The federal government led an effort by the major industrial powers to release some emergency oil supplies, pulling the per barrel cost down to $67.57 for light, sweet crude for delivery in October on the main New York contract.
Haruhiko Kuroda, president of the Asian Development Bank, said last Friday: I dont think $70 U.S. will be maintained, but how much and when prices start to decline, no one knows. Theres a great uncertainty that exists.
John Koldowski, managing director of the Strategic Intelligence Center at the Pacific Asia Travel Association in Bangkok, told Agence France Presse (AFP) that the travel industry is taking a long, hard look at what is happening in the oil sector. The idea of $100 a barrel oil had been dismissed out of hand a few months ago but Were really now starting to take it seriously, he said.
Its a whole new ballgame for us, Koldowski added. Were now talking about prolonged levels of relatively high oil prices. Analysts in the U.S. say $3-a-gallon gasoline will be a fact of life for the rest of the year.
They add that with the Gulf Coast refineries damaged by Katrina, all that would be needed to push prices to $100 per barrel would be a terrorist attack, a strike or some other incident causing additional crippling of production facilities.
If we have supply disruptions in Saudi Arabia, Iraq or Venezuela or Nigeria, then it could be even worse, said Tony Nunan, who is manager of energy risk for the Mitsubishi Corp.s international petroleum business in Tokyo.
Nunan added: We could easily have a bigger problem if this sort of thing (strike) or terrorist attack occurs in a major oil producing country now…prices will shoot up to three-digit figures.
Analysts warn that any disruption of Saudi Arabias production facilities would send shock waves through global oil markets. The Saudis are the largest producer of crude oil on the planet and control more than a quarter of the worlds oil. The country has been wracked by a rash of terrorist attacks in the past two years, many attributed to al-Qaeda.
Deborah White, senior energy analyst with Societe Generale in Paris, told AFP: The geopolitical situation in oil-producing countries like Nigeria and Iraq is certainly less stable than we would like. It keeps nervousness and prices high.
Oil prices have rocketed more than 50 percent since the end of last year when the commodity was trading at about $43 a barrel. The sharp increase is attributed to rising global demand for oil, with China and the U.S. as the major demand drivers.
Katrina closed down up to 88 percent of the daily Gulf crude production and almost 79 percent of the natural gas output. Originally, the fall off was 91 percent for oil and 83 percent for gas. The Department of Energy reported one Louisiana refinery was resuming production, but eight others in the area remained closed.
The nine refineries together put out 1.83 million barrels of crude oil daily, under normal conditions. Thats about 10 percent of the total domestic output. We have yet to find out how much damage Katrina has caused. At the moment, we are at the mercy of the weather…the worst is that the hurricane season is not over, White said.
The season runs until November, and the U.S. National Oceanic and Atmospheric Administration warned last month that seven to nine more storms could develop this year, chiefly threatening islands in the Caribbean and the southern coast of the U.S.
The season is still another three months…we still have a long way to go. If we have another hurricane in the same area, it will be a total panic for the oil market, Nunan said.
He added if oil prices hit the three-digit level, it would be enough to get everybody, politicians, economists and the average person on the street jumping up and down and cutting back on spending and driving.
Statistics from Agence France-Presse courtesy of copvcia.com.
From the Oct. 5-11, 2005, issue