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Gauging Katrina's Effect on Oil Prices

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Gauging Katrina's Effect on Oil Prices

Economy

Gauging Katrina's Effect on Oil Prices

Gauging Katrina's Effect on Oil Prices

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Oil prices rise as traders await reports of damage to production facilities in the Gulf of Mexico. At least eight refineries in the path of Hurricane Katrina shut down or reduced operations. Energy consultant David Purcell, of Pickering Energy Partners, talks about how the damage from Hurricane Katrina is affecting oil production and prices.

RENEE MONTAGNE, host:

Oil prices rose today as traders await reports of damage to production facilities in the Gulf of Mexico. At least eight refineries in the path of Hurricane Katrina shut down or reduced operations. David Purcell is a partner at the research firm, Pickering Energy Partners. He joins me on the line from Houston.

Good morning.

Mr. DAVID PURCELL (Pickering Energy Partners): Good morning.

MONTAGNE: What can you tell us about the damage to the oil infrastructure in the Gulf of Mexico?

Mr. PURCELL: Well, we've got a little daylight this morning so we're starting to get back some preliminary news reports. And what we do know, we've got a couple drilling rigs that are missing. We have a couple other drilling rigs that are kind of where they weren't supposed to be, so they've floated around and--which tells you that the wind and waves were--confirmed what we knew, the wind and waves were strong. This was a big storm.

Now more specifically, we've been able to do some assessment of some ports in southern Louisiana, right on the coast, and these are very important staging areas when--after a hurricane, to get people back out onto the platforms and get equipment back out there to repair any damage and to restore production quickly. So it doesn't mean production can't be restored; it's just going to take longer to get production back on.

MONTAGNE: Well, I think what--the question everybody will be thinking right now is, how is that going to affect the oil prices and most particularly in the short term?

Mr. PURCELL: Yeah, I think in the short term, it's interesting; the commodity prices are high today because yesterday it was uncertain what the nature of the damage is, and as we get more confirmed reports in, it looks like--you know, the initial reports show that there's a considerable amount of damage. And I think the market's been extrapolating that to--saying, you know, `This could be as bad or worse than Ivan from a production impact.' In other words, it's going to take awhile to get production back on. And on top of that, we have information from some refineries in the New Orleans area that they may be down for as much as two weeks because of some light flooding and, more importantly, power outages. They're just not clear when they're going to--when a reliable power supply will be restored back to the area.

MONTAGNE: Well, to the question of oil prices going up, what about retail gasoline prices? Would they now...

Mr. PURCELL: Well, when oil...

MONTAGNE: ...go up?

Mr. PURCELL: Yeah, when oil prices go up, gasoline prices go up on the wholesale level, and your local guy is going to--local gas station owner is going to have to increase prices. So look to pay more at the pump, and not just a couple pennies more; it looks like you're going to be paying 10 to 20 cents a gallon more here in the next week or two if this scenario we just painted holds.

MONTAGNE: And as we've just heard from our reporter, David Greene, President Bush is considering whether to tap into the nation's emergency petroleum reserve. What effect would that have on the market?

Mr. PURCELL: It probably has a little bit of a dampening impact on the market, but we don't have necessarily a shortage of crude oil. We have more a shortage of gasoline and refined products. A Strategic Petroleum Reserve release, we just don't think, is going to do much. But that said, it's about the only thing Washington can do right now.

MONTAGNE: Thank you very much for talking with us.

Mr. PURCELL: You bet.

MONTAGNE: David Purcell is a partner at Pickering Energy Partners in Houston.

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