Economist: Oil and Troubled Waters

[many a good man]

Sep 2nd 2005
From The Economist Global Agenda


The economic effects of Hurricane Katrina, like the human costs, are hard to predict. But the disaster is already putting upward pressure on oil prices at a time of strong demand, tight supply and refining bottlenecks

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While big hurricanes like Katrina destroy wealth, they sometimes lead to a temporary surge in GDP as the downturn immediately after the storm is made up for by the burst of economic activity that takes place when the rebuilding begins. In the case of Katrina, however, any output boost will be balanced by the effect on the area's energy infrastructure. In a research report from Merrill Lynch, David Rosenberg says that while rebuilding could add $40 billion to America's GDP, disruptions to energy supplies could raise prices enough to claw back $30 billion of that gain.

The Gulf of Mexico provides about a tenth of all the crude oil consumed in America; and almost half of the petrol produced in the country comes from refineries in the states along the Gulf's shores. Though some pipelines have begun operating again at reduced capacity, some three-quarters of the region's natural gas production, and over 90% of oil output, are still shut down, and the Department of Energy reported on Thursday that ten refineries, processing 1.9m barrels per day, are out of action. Twelve more refineries have been forced to cut production owing to supply shortages.

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Innocents abroad

The ripples will spread even beyond America’s shores. Many other nations, particularly in Asia, are heavily dependent on robust American demand for their exports; and some are already feeling the pain of high oil prices. Indonesia's central bank was forced to raise interest rates sharply on Tuesday to stem a near-10% drop in the rupiah. Partly thanks to lavish fuel subsidies, Indonesia’s oil imports, financed in dollars, have touched off fears of a balance-of-payments crisis, driving the currency sharply downwards. While rich countries are much less dependent on oil than they used to be, thanks to increases in fuel efficiency and a shift from manufacturing to services, middle-income countries are still big energy guzzlers: India and South Korea use more oil per dollar of GDP today than they did in the 1970s.

Even in less-thirsty Europe, there are fears that economic recovery could be choked off in its infancy by the steady upward march of prices for petrol and heating oil. That would weaken another of Asian exporters’ main markets and leave the world economy looking vulnerable. If the damage Katrina has done to the Gulf's oil-pumping capacity forces Americans to shop abroad for more fuel to feed their appetites, it could be a long cold winter for everyone.

More: http://www.economist.com/agenda/displaystory.cfm?story_id=4362200&fsrc=nwl

[many a good man]

1. "Could be a long cold winter"

Energy price gouging could eat up 3/4ths of economic gain....

[barb162]

2. another in a long list of fact-filled frightening articles

[Porcupine]

3. This will be as bad as New Orleans before it gets better.

Peak Oil is about to kick our asses.