Hurricane Katrina hits production and prices soar

Crude oil, gasoline, and natural gas prices all soared on Monday as Hurricane Katrina hit the Gulf Coast of the United States as one of the strongest storms ever to reach US shores.

Refineries were hit particularly hard, taking at least 1.8 million barrels per day worth of refining capacity off-line. With refineries throughout the US already working at near-capacity, there was nowhere to make up the lost refining ability.

It is unclear how much damage the storm has done to refineries and other facilities, or how long it will take to repair whatever damage there is. It will probably be several days before full assessments of damage can be made.

All of this combined to send gasoline prices on the New York Mercantile Exchange as high as $2.1575 per gallon during the day, and eventually closed at $2.0606 per gallon, a rise of 13.37 cents on the day.

Heating oil topped $2 per gallon for the first time ever before closing up 7.22 cents to $1.9088 per gallon, while natural gas was up by $1.49 to $11.30 per million British thermal units in afternoon trade.

Lost production in the areas affected by the hurricane amounted to an estimated 1.8 million barrels per day for crude oil, while lost natural gas production was said to be around 8.3 billion cubic feet per day.

It was unclear whether US President George W. Bush would release supplies from the nation’s strategic reserve to make up shortages, but the possibility was under consideration.

In addition, Saudi Arabia said it was ready to boost output to 11 million barrels of crude oil per day to ease supply shortages.

But, even with extra crude oil released, there is precious little extra refining capacity to process it into gasoline.

West Texas Intermediate crude was up by $5 to $70.80 per barrel during the day, but by the close of trade it had eased back and only gained $1.07 over Friday’s close to $67.20 per barrel.

Brent crude on the International Petroleum Exchange in London did not trade due to a bank holiday.