The ripple effects of Hurricane Katrina’s destruction in the Mississippi River basin already are making themselves felt in the U.S. economy, particularly in fuel prices, which are expected to quickly spike at more than $3 a gallon at the pumps.
“The trading market yesterday went into orbit,” says Jerry Nessenson, president of Valvtect Marine Fuel, which supplies 500 marinas with its special blend of fuel.
Nessenson says prices in the Gulf Coast states since Friday went up $1.20 a gallon, to a wholesale price of $3.05 a gallon for unleaded. Prices in New York City were up 60 cents a gallon to $2.45. Nessenson predicts prices at the automotive pumps will reach around $3.50 a gallon, and marine prices will top $4 a gallon.
Supply is also a concern. Nessenson says oil companies are rationing supplies to distributors, which is causing shortages to consumers in some areas. Marinas are particularly hard hit, he says, because marine fuel is a lower priority. The shortages are particularly acute in the Gulf regions, obviously, but Florida is also is feeling the pinch. Nessenson says some of his marina customers are alerting boaters with slip reservations this weekend that fuel supplies will be limited.
“It’s a tough sign of things to come,” says Nessenson, who adds that he personally knows boaters who have cancelled voyages planned for this Labor Day weekend.
The hurricane, which rolled into Louisiana Monday and ripped across Alabama and Mississippi, halted oil production in the Gulf of Mexico where a third of the nation’s domestic oil is produced. Platforms were evacuated, refineries were shuttered and a major oil import terminal was closed.
Refineries in the Gulf Coast area supply finished fuel products to nearly all distributors east of the Rockies, says Nessenson.
It may be weeks before the full extent of the damage at facilities is determined. It takes several days for a refinery to start up production again. Power outages will likely add to the delays, and analysts say it could be months before production returns to pre-storm levels.
The Louisiana Offshore Oil Port, which was evacuated Sunday, appears to have suffered no significant damage, according to a report by the Department of Energy issued Tuesday afternoon. But the biggest hurdle in restarting operations is in restoring electrical power.
Offshore platforms have been hard hit. The Coast Guard, which has been surveying damage with representatives of the petroleum industry, says at least five drilling rigs are missing, seven are adrift and two are listing.
Hurricane Ivan in 2004 led to an estimated loss of nearly 44 million barrels of oil production between September 2004 and February 2005, according to Aon Corp., a risk management service.
Federal officials today say they plan to tap into the nation’s oil reserves to help refiners. Energy Secretary Samuel Bodman, in a televised interview, said the government later today will make an official announcement but that officials are prepared to loan refiners barrels of crude.
Shortly after Bodman’s comments, crude oil prices fell 26 cents, to $69.55, around 9 a.m.
Nessenson says tapping into the reserves will help assuage fears, but that the bigger problem is the ability of the refineries to produce enough fuel. Even before the storm, refineries were struggling to keep pace with demand for finished fuel products.
“A car or a boat can’t burn crude oil,” says Nessenson.
— JoAnn W. Goddard
j.goddard@tradeonlytoday.com 
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