Hurricane Rita Could Lead to Higher Oil Prices

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First Hurricane Katrina shut down oil refineries in Louisiana, and now Hurricane Rita threatens coastal Texas, home to a fourth of the nation's oil refining capacity. If this week's storm knocks additional refining capacity out of service, prices at the pump could go much higher.


Almost every business could be affected by another spike in oil prices. As the wind speed of Hurricane Rita keeps rising, so does the price of oil. More big oil companies are moving their workers out of the Gulf of Mexico. The storm is heading toward the Texas coast, home to many big refineries. And many energy traders are worried it will disable production facilities that were spared by Katrina three weeks ago. NPR's Jim Zarroli reports.

JIM ZARROLI reporting:

Once again yesterday, a hurricane was creeping across the Gulf of Mexico gathering strength as it moved, and oil companies were contemplating more damage to their rigs and refineries. Concern about the storm's impact on oil production sent stock prices down and the president of Valero Oil warned that gasoline could shoot back over $3 a gallon. Meanwhile, the price of a barrel of oil rose another $1.15 on the New York market, finishing at $67.35. That was on top of big increases earlier this week. Dan Pickering, president of Pickering Energy Partners in Houston, said traders are worried that Rita will damage facilities that were spared by Katrina.

Mr. DAN PICKERING (President, Pickering Energy Partners): Every little bit matters in this environment, and so lowering US gasoline production, if only for a few days, will tighten up the market on the margin and that's what you've seen the financial markets react to.

ZARROLI: Of big concern right now is refining capacity. Katrina shut down most of the big oil refineries in Louisiana and Mississippi, and four are still off line. About a quarter of the nation's refining capacity is in Texas. But Pickering says, even if Rita remains a strong hurricane, there are reasons to be less worried about the outcome. He says the Texas refineries are spread out over a much larger area than those struck by Katrina.

Mr. PICKERING: That's a big area and you--so you have some pockets of capacity, but it's not all bunched in one place and, I think, important to remember--that the damage from Katrina was both loss of power at the refineries and then water damage.

ZARROLI: Pickering says Rita could knock power out to the refineries, but the odds are against a repeat of the unusual storm surge caused by Katrina. Still, with the memory of Katrina's destruction so fresh in people's minds, many people in the oil business, like many people throughout the Gulf, aren't taking any chances. Jim Zarroli, NPR News, New York.

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