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Slower but steady

Money | Gas prices rose as workers returned to the area's oil platforms and refineries to assess the damage of Hurricane Katrina

Issue: "Katrina: Unnatural disaster," Sept. 10, 2005

A bad summer for gasoline prices grew worse last week as Hurricane Katrina swept into the Gulf of Mexico and pummeled one of the most important bases of energy production in the United States.

Gas prices rose as workers returned to the area's oil platforms and refineries to assess the damage last week. Average prices nationwide increased from $2.62 per gallon on the morning of Aug. 31 to $2.68 on the morning of Sept. 1, according to AAA, and analysts were predicting bigger jumps down the road.

The Southeast was hit especially hard, with price spotters for gassbuddy.com reporting numerous stations where gas reached $3.99 per gallon in Atlanta on the night of Aug. 31. Some Atlanta gas stations reportedly had prices as high $6.00 per gallon that night, prompting warnings about price gouging from Georgia officials. In several cities, many gas stations simply shut down.

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"This is the big one," oil analyst Peter Beutel told the Associated Press. "This is unmitigated, bad news for consumers."

The problem was not a lack of oil, despite production stoppages in the gulf. Oil prices even dropped after President Bush decided to release oil from the nation's strategic reserve and Saudi Arabia promised to increase output by 1.5 million barrels a day.

The difficulty was turning that oil into gasoline and then getting it to market. It could take months for damaged refineries and pipelines in the gulf to get back to full power, although other refineries might try to speed up their production. "Our citizens must understand the storm has disrupted the capacity to make gasoline and distribute gasoline," said Mr. Bush after cutting short his vacation in Crawford, Texas, to return to the White House.

Some other sectors were also directly affected by the hurricane:

•Farmers. Katrina's aftermath will disrupt their grain shipments down the Mississippi River. Importers who bring in goods through the Gulf of Mexico will also face headaches. Gulf ports normally see about $150 billion in exports and imports pass through annually.

•Insurance companies. "This will be one of the-if not the-biggest single event in terms of insured losses in U.S. history," said Julie Rochman, spokeswoman for the American Insurance Association. Early estimates put insured losses at $25 billion.

•Airlines. Many were already struggling before Katrina. Then jet fuel prices rose 22 percent in two days late last month.

•Natural gas consumers. The Gulf Coast is a key center for natural gas production, and natural gas futures rose 20 percent on Aug. 29. That could raise home heating prices this winter, which is forecast to be colder than normal anyway.

Still, for all the disruptions, the economy was in a stage of recovery when it took Katrina's pounding, and that will likely soften the hurricane's impact, some economists said. The economy had been growing at a 3 percent to 4 percent clip this year, and estimates last week had that slowing by between 1/2 and 1 percentage point over the next two quarters.

"There is no question this is bad news for the economy," said Nariman Behravesh, chief economist at Global Insight. "We will take a hit to growth but we won't fall into a recession."

Timothy Lamer
Timothy Lamer

Tim is managing editor of WORLD magazine.

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