Hurricane and energy prices, So futures are spiking due to the upset in weather

Date:   8/29/2005 10:20:50 AM ( 19 y ago)

Energy Futures Skyrocket on Katrina

By Elinor Arbel
Staff Reporter
8/29/2005 10:06 AM EDT
Energy prices went haywire Monday as Hurricane Katrina brought its wrath to the nation's primary oil and gas infrastructure along the Gulf Coast.

After topping $70 overnight, crude for October delivery was recently up $2.72 to $69.85 a barrel in electronic Nymex trading. Natural gas futures rose $1.48, or 15%, to $11.27 per thousand cubic feet, while unleaded gasoline added about 20 cents to $2.13 a gallon.

The storm, weakening slightly to Category 4 overnight, made landfall in southeastern Louisiana and will push just east of New Orleans in the next few hours. Katrina and its 135 mph winds have shut in roughly 1 million barrels of daily refinery capacity and halted about 40% of crude production in the region.

The eye of the storm reached Grand Isle, La., north of the Louisiana Offshore Oil Port, which normally processes and delivers 1.2 million barrels of imported oil a day. The port has been shut down since midday Sunday, according to spokeswoman Barb Hestermann.

The U.S. imports roughly 10 million barrels of oil a day and produces about 7 million barrels a day.

Hurricane Ivan, which slammed though the Gulf this time a year ago and made U.S. landfall at Category 3, destroyed oil rigs and pipelines and cut 43 million barrels of supply. The government released crude from the strategic petroleum reserve in order to make up for the lost production.

Among stocks, refinery operator Valero (VLO:NYSE - news - research - Cramer's Take) rose 1.3% to $90.50 on Instinet, while Sunoco (SUN:NYSE - news - research - Cramer's Take) shot up 4% to $65.98 and Frontier Oil (FTO:NYSE - news - research - Cramer's Take) jumped 7.4% to $33.5. The Energy Select Sector (XLE:AMEX - news - research - Cramer's Take) ETF rose 1.5%.

Among the closed refineries are Valero's facility in St. Charles, La., and Exxon Mobil's (XOM:NYSE - news - research - Cramer's Take) plant in Chalmette, La. Chevon (CVX:NYSE - news - research - Cramer's Take) said Sunday that it had evacuated all of its offshore rigs.

Forecasters say Katrina came ashore in Plaquemines Parish, La., which is home to ConocoPhillips' (COP:NYSE - news - research - Cramer's Take) 247,000-barrels-a-day refinery at Belle Chase. Murphy Oil (MUR:NYSE - news - research - Cramer's Take) operates a 120,000-barrels-a-day refinery at nearby Meraux, La.

Roughly one-quarter of U.S. crude and natural gas output is located along the Gulf Coast. About one-sixth of the U.S. oil supply comes through facilities at Port Fourchon, La.

In a note to inventors, RBC Capital Markets said exploration and production companies such as Southwestern Energy (SWN:NYSE - news - research - Cramer's Take), Quicksilver Resources (KWK:NYSE - news - research - Cramer's Take) and Chesapeake Energy (CHK:NYSE - news - research - Cramer's Take) are the most exposed to rising natural gas prices and the least exposed to the Gulf of Mexico. The brokerage firm has investment-banking relations with the mentioned securities. Chesapeake shares rose 4.5% to $29.36 in Instinet trading.

Spinnaker Exploration (SKE:NYSE - news - research - Cramer's Take), according to RBC, has the greatest risk of losing production, as 40% of its operations were likely hit by the storm.

Energy prices refused to soften despite bearish commentary from OPEC overnight. Wire reports quoted the cartel's current chief, Shaikh Ahmad al-Fahd al-Sabah of Kuwait, expressing concern Monday about the refusal of oil prices to decline from recent high levels.

"We are becoming increasingly concerned at the continuing high level of oil prices, which does not properly reflect the underlying fundamentals of the market," he said. "OPEC will be exploring various options for the September meeting, which will hopefully contribute to moderate prices."


 

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