Katrina, Oil and Gasoline

Well, it looks like gasoline might not be going as high as previously thought. Right now, via Bloomberg gasoline for near month delivery is at 222 cents/gallon. Why? Well it looks like the Colonial Pipeline is back online. This is good news as far as getting gasoline out of the New Orleans area. The Capline pipeline also resumed operations on Wednesday as well. The Valero St. Charles refinery has restored power and that a quarter of the workers there have returned. Also, Chevron’s Pascagoula, Miss.refinery has avoided catastrophic damage, but is still offline. From what I’ve read Port Fourchon and the LOOP are also not nearly badly damaged as were feared and the biggest hurdle appears to be getting electrical power restored. In fact, the LOOP restored pumping operations yesterday. And the Plantation pipline is back in operation. Strange that the Oil Drum seems to have missed all of these bits of news.

Another bit of good news the Oil Drum seems to have missed is that the EPA has come out with a limited waiver for 46 states regarding the volatility requirements for unleaded gasoline. In other words, a refinery in that is geared up for conventional gasoline that previously could not sell in areas with boutique blend requirements may now be able too. This will help reduce gasoline volatility.

The electricity situation is daunting though. According to this article 99 lines have been reported down and 104 substations out of service, and that is just the transmission system (high voltage lines). The distribution system is almost assuredly worse off. For example if Mississippi is any indicator, there are an 4,500 poles that need to be replaced in Mississippi.

In short, things are bad in regards to oil shipping, refining and pumping, but the problems may not be as horrible as first thought. Since oil is a global commodity the loss of offshorre production in LA wont have a huge impact on oil prices (oil prices at NYMEX are well under 70/barrel at $67.80 according to Bloomberg). The fact that some of the refineries aren’t as badly damaged as initially feared and that piplines and Port Fourchon and the LOOP are actually starting some aspects of operation all spell limited good news.

Thanks to Victor at Dead Parrots Society for pointing out some of these items.

Update: Just checked at the Entergy website and things are a little less bleak than initially thought. There are only 92 lines down and 99 substations out of service. Further, Entergy has restored power to some 363,000 of their customers.

Update II: The Oil Drum points to another spot of good news.

LONDON – European refiners are sending large volumes of gasoline to the United States after Hurricane Katrina devastated the Gulf Coast, closing refineries and causing shortages, ship brokers said on Thursday.

Basically, it will limit to some degree how high prices can go.

And granted things are still pretty bleak, but not as bleak as the were a day or two ago.

Econbrowser also has a very good summary of some of this including the releasing of oil from the SPR.

FILED UNDER: Economics and Business
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. frankr says:

    Someone should monitor the effect of eliminating the boutique gasoline formulations on the pollution levels, and compare this with previous years to see if there is any statistically significant effect to this change. Then, factor the increased price of the boutique gasoline against any benefit/detriment to the pollution level. I’m wondering if 31 flavors of gasoline really buy us any pollution benefit? Just a thought.

  2. Steve Verdon says:

    Frank,

    That would be a good idea…so nobody will actually get around to doing it.

    Heck, even selecting one boutique blend would go along way towards reducing the volatility, but again a good idea, hence not going to be done.

  3. Herb says:

    In my community, a local TV station conducted a survey. The question asked was “Do you think these high gasoline prices are a result of price gouging”? The results were:

    78% said the oil companies were price gouging
    18 % said the price was about right.
    4 % were not sure.

    Now that the prices of oil and gasoline dropped dramatically today (9-2-05) Lets see if we see a price drop equal to the increase we saw on 9-1-05
    ( about .50 Cents per gallon).

    I bet we don’t see it.

    Now that supply is back in line with demand and the price of oil is back down, I wonder what excuse the oil companies will use next to gouge everyone.

    And Steve, while you somewhat admit that you were a little out of bounds using the name “Comrade” you still could not resist to put the knife in by comparing my comment to “Stalinist words”, so, I guess you do not have the capacity to be decent in your replies to comments by others that disagree with you.

  4. Bithead says:

    If the comparison fits…. perhaps a re-assewssment of your stated position is in order.

  5. Steve Verdon says:

    In my community, a local TV station conducted a survey. The question asked was “Do you think these high gasoline prices are a result of price gouging”? The results were:

    78% said the oil companies were price gouging
    18 % said the price was about right.
    4 % were not sure.

    Wow a survey…probably an unscientific one to boot. I’m really impressed.

    Nevermind the increase in demand in China and India, ignore production constraints in various parts of the world and the recent hurricane. Why gasoline would be very cheap if only it weren’t for those evil oil companies. Of course, how it would actually be made into gasoline and get into Herb’s tank is beside the point.

    Now that the prices of oil and gasoline dropped dramatically today (9-2-05) Lets see if we see a price drop equal to the increase we saw on 9-1-05
    ( about .50 Cents per gallon).

    I bet we don’t see it.

    Has nothing I’ve posted sunk in? It isn’t just the price of oil Herb. Refining and the different boutique blends also play a significant part of the issue. Now the latter does allow for an increase in market power which also means higher prices, but that isn’t simply the fault of the refiners (although I bet they aren’t unhappy about it either and may even support this kind of environmental legislation).

    There is lots of “blame” to go around on this issue. The oil companies, environmentalists, NIMBY and BANANA loons, as well as the politicians.

    And Steve, while you somewhat admit that you were a little out of bounds using the name “Comrade” you still could not resist to put the knife in by comparing my comment to “Stalinist words”, so, I guess you do not have the capacity to be decent in your replies to comments by others that disagree with you.

    Well Herb what can I say? I still think your comment was reminiscent of Stalinist policies. Perhaps if you backed off that view….