All washed up

Oliver Morgan looks at the economic consequences of Katrina’s fury leaving the US offshore oil industry in ruins

With a death toll in the thousands, widespread flooding, rampant looting, a million people evacuated from their homes and the declaration of a public health emergency, Hurricane Katrina has already been called America’s worst natural disaster – will it also be an economic one?With a death toll in the thousands, widespread flooding, rampant looting, a million people evacuated from their homes and the declaration of a public health emergency, Hurricane Katrina has already been called America’s worst natural disaster – will it also be an economic one?
The storm tore through the heart of the American offshore oil industry in the eastern gulf of Mexico. By Wednesday, according to the US government’s Minerals Management Service (MMS), 91.45 per cent of US Gulf of Mexico oil production had been ’shut in’ – or cut off. This amounts to some 18 per cent of US output. In addition, 83.46 per cent of its gas production was interrupted. As the week progressed production crept back – but very slowly.

President Bush ordered US oil refiners to be provided with crude oil from the 700 million barrel strategic oil reserve – a sure sign of an emergency – while suspending environmental regulations on the production of fuel.

The hurricane serves as a reminder that oil is to be found in difficult places. If it is not political instability in the Middle East or tax risk in Russia, it is Katrina, tearing around the Florida panhandle and into the lowlands around New Orleans. Oil prices, already at record nominal highs, breached $70 for the first time before falling off in response to Bush’s moves. Average gasoline prices in America headed towards $3 a gallon. Some see this as a prelude to problems for some time to come. Goldman Sachs, for example, warned that growth in the third and fourth quarters could fall by at least half a per cent.

The Guardian