Rita's Impact on Oil Industry Less Than Feared

Oil and gas production in the Gulf of Mexico remains largely suspended Monday after Hurricane Rita swept through the region on Saturday. The storm damaged several big refineries in Texas and Louisiana, but the impact appears to have been less than expected.

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RENEE MONTAGNE, host:

Oil and gas production in the Gulf of Mexico remains largely suspended today after Hurricane Rita damaged several big refineries in Texas and Louisiana. Although the impact appears to have been less than expected, energy prices are down as a result. NPR's Jim Zarroli joins me now.

And, Jim, how much do we know now about the damage that Rita caused to oil production facilities in the Gulf?

JIM ZARROLI reporting:

Well, the US Energy Department says that all crude oil production in the Gulf was suspended over the weekend and 80 percent of natural gas production. A lot of the companies fled the region in anticipation of the storm. They're now coming back in to assess the damage that's happened over the weekend. Also the Coast Guard performed aerial surveys over the weekend of the off--some the offshore rigs. They said there was some damage to at least two rigs. Eight of 38 mobile offshore drilling units were adrift. But given the ferocity of the storm, I think the feeling a lot of people are--have is that, you know, it could have been a lot worse.

MONTAGNE: Well, what about the condition of the oil refineries along the Texas coast?

ZARROLI: Well, the most seriously damaged was Valero's refinery in Port Arthur, Texas. It's very big. It processes a quarter of a million barrels of oil a day. It won't be restarted for two weeks, maybe as long as a month. There were at least a couple of other refineries that were damaged. That's a serious problem because refining capacity right now, as you know, is very tight in the United Sta--in the world. The two storms, Rita and Katrina, together have knocked out an estimated 30 percent of US refining capacity, at least temporarily. But here, too, there's a feeling that Rita could have been much worse. ExxonMobil said its Baytown refinery, which is the largest in the country, was pretty much unscathed. Workers will begin restarting it today. And unlike Katrina, there was no major damage to the pipelines in the region. So, you know, a lot of people are breathing a sigh of relief this morning.

MONTAGNE: Well, so oil prices rose in the days leading up to Hurricane Rita. So now what?

ZARROLI: Well, they started to come down again toward the end of last week after Rita was downgraded, and they fell even more yesterday. The New York Mercantile Exchange had Sunday trading so traders would be allowed to respond to the storm damage a day earlier than normal. As it turned out, trading was very light. Prices came down a bit to just un--over $63 a barrel, and they're down a little more this morning.

Of course, even at that level, oil prices are a lot higher than they were a year ago. There's still a lot of concern about supplies. Many of the--most of the refineries in Mississippi and Louisiana were shut down because of Katrina. Four of them are still off line, and now refining capacity has been limited even further.

MONTAGNE: And what kind of an impact is that likely to have then on the price of heating oil and of gasoline?

ZARROLI: Well, even if the damage from Rita is mild, as is apparently the case, a lot of refineries have been shut down. That's going to cause a temporary supply disruption which could drive up prices temporarily. But a lot of oil analysts say that if there are no more major catastrophes, oil prices will stabilize by the end of the year. We're even likely to see them come down somewhat. But there still is this problem of global demand, which is very strong, and that's really the major force driving up prices right now. These hurricanes aggravate the shortages for a while, but they're only one reason that prices have come up so much.

MONTAGNE: Jim, thanks very much. NPR's Jim Zarroli.

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