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Hurricane Gustav May Rival Katrina Gulf impact

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    Charles Randall

    <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 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.

                                 Shut In

         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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