August 27, 2008 at 12:58 pm #3458
<Speculators (who are claimed to still hold ~81% oil hedges) are already running with this worse case impact for both crude / product prices – CER>
Gustav May Rival Katrina as It Advances Toward Gulf of Mexico
By Aaron Clark
Aug. 27, 2008 (Bloomberg) — U.S. oil and natural gas producers
are beginning evacuations in the Gulf of Mexico as Tropical Storm
Gustav, which may become the costliest hurricane since Katrina
and Rita in 2005, heads toward the region.
“We could see 50 percent of Gulf of Mexico oil and gas
production shut in,” said Andy Lipow, president of Lipow Oil
Associates in Houston.
Energy prices rose as the storm was forecast to regain
hurricane strength on a track toward Louisiana and the offshore
fields responsible for about a quarter of U.S. oil production and
15 percent of gas output.
Gustav lost strength as it moved over Haiti. The storm
packed sustained winds of almost 60 miles (95 kilometers) per
hour and was about 90 miles 120 miles southeast of Guantanamo,
Cuba, just before 8 a.m. New York time, the U.S. National
Hurricane Center said in an advisory. Gustav may strengthen into
a hurricane tomorrow.
The Hurricane Center’s five-day forecast track shows Gustav
crossing western Cuba and heading up toward Louisiana.
Gustav may become a “destructive hurricane rivaling Rita
and Katrina in effect on energy,” Joe Bastardi of
AccuWeather.com in State College, Pennsylvania, said in an
outlook today. “Tracks of storms of this genre include the worst
hits on Galveston and Gustav has a chance to join that list.”
Hurricane Katrina, the costliest storm ever to hit the U.S.,
with damage estimated at $81 billion, was a Category 3 storm when
it struck along the Gulf Coast in August 2005.
Hurricanes are rated on the 5-step Saffir-Simpson scale,
with Categories 3 or higher deemed “major” storms with winds of
111 mph and higher.
Crude oil for October delivery rose $2.92, or 2.5 percent,
to $119.19 a barrel at 9:17 a.m. on the New York Mercantile
Exchange. Prices are up 66 percent from a year ago.
Natural gas for September delivery rose 35.5 cents, or 4.3
percent, to $8.633 per million British thermal units at 9:54 a.m.
on the exchange. Futures have tumbled 37 percent since closing at
$13.577 on July 3, a 30-month high.
Royal Dutch Shell Plc today began evacuating non-essential
personnel and said there was no impact on production.
ConocoPhillips, which evacuated its sole Gulf platform,
Magnolia, ahead of an unnamed storm last September, is monitoring
Gustav, spokesman Charlie Rowton said today in an interview.
Magnolia had daily output equivalent to about 33,000 barrels of
oil in 2006.
Diamond Offshore Drilling Inc., world’s second-largest
deepwater oil driller by market value, said it was beginning to
secure wells in preparation for the storm and had made no
Damage to Rigs
Damage to deepwater rigs, platforms and undersea pipelines
may be less than in 2005 because operators are be better prepared
for winds and high seas, Lipow said.
“The technology and the procedures have improved,” he
said. “The industry learned a lot from Katrina and Rita.”
The Gulf’s shallow-water rig and platform fleets are older
and may remain vulnerable to serious damage, he said.
Oil and gas prices will rise further as Gustav moves closer
to rigs, platforms and coastal refineries, Lipow said.
“Prices have been rising as the storm moves closer, and I
don’t think all the risk is priced in,” he said. “Who wants to
sell short in the face of a hurricane?”
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