Oil, Shipping Cost Key to Katrina's Economic Impact
LINDA WERTHEIMER, host:
Joining us from member station WFCR in Amherst, Massachusetts, is our friend from the world of business, Joe Nocera. Joe, hi.
JOE NOCERA reporting:
WERTHEIMER: Now Joe, you've been watching the markets and talking with people about the effects of Hurricane Katrina. How far into the economy are we feeling its effects?
NOCERA: A lot more, I think, than people would have thought, given that our impression of New Orleans is as a city fundamentally of tourism. The Gulf area and the New Orleans area is one of the great ports of the United States. And so all of kinds of things that you wouldn't expect to be affected are, in fact, affected. So for instance, grain in Nebraska, wheat in Nebraska, often is exported out of the United States through those ports. Guess what? Grain prices are down substantially on the commodities market. Coffee comes into the country in no small amount in those same ports. Guess what? The price of coffee has risen dramatically on the commodities exchange. So there's all kinds of things like that. And then, of course, there's the Big Kahuna, which is oil.
WERTHEIMER: What are you hearing about how bad things are when it comes to oil?
NOCERA: Well, you're hearing a lot of rumors more than you're hearing facts. I mean, the first fact is that even before this hurricane happened, demand for oil was increasing and supply was not increasing. So that's the reason prices had already run up even before this. Supply and demand are somewhat out of balance. The refineries in the United States are old, the infrastructures a little bit weak. Everything was running at, you know, beyond full capacity, and then we have the hurricane.
And so now we have a situation where, you know, some refineries are slightly damaged, some are badly damaged. There's a lot of question as to whether there's damage in the pipeline system itself. I heard reliably on Friday that oil was leaking into the Gulf from a ruptured pipeline, that nobody knows for sure how big the rupture is. And then the giant oil tanker port in Venice, Louisiana, is down, and that's the only place in the United States where the huge oil supertankers can unload.
So the things you have to watch for is, you know, how quickly can they reopen that oil tanker port? How quickly can they get the refineries that are down back up? You know, how badly damaged are the pipelines? And these are the questions that we don't know now but we'll have a much clearer sense of in the next couple of weeks and possibly a month.
WERTHEIMER: So this goes way beyond the price of gas, I gather.
NOCERA: Well, yes. I mean, the price of gas is--you know, in my little neck of the woods it went up a buck between Tuesday and Friday, and it's going to go up even more. And that certainly does affect the way people think and respond and act. But think about, for instance, the airline industry and the automobile industry. You know, both industries right now are very fragile. Delta is poised to go into bankruptcy. Northwest is fighting a strike. They all have terrible costs. Big jumps in the price of fuel could actually be disastrous for the airline industry, and it could cause widespread bankruptcy.
The auto industry in the United States has bet the rent on SUVs, which are very fuel-inefficient. And if we get to the point where people over the long term think, `Oh, my God, I can no longer be driving an SUV because they're too cost-inefficient,' suddenly, you know, Ford and General Motors are in a lot more trouble than they are already. So the ultimate effect of this is going to ripple way past the gas station.
WERTHEIMER: Joe Nocera is a business columnist for The New York Times. Joe, thank you very much.
NOCERA: Thanks for having me, Linda.
WERTHEIMER: And you're listening to WEEKEND EDITION from NPR News.