Gas Prices

In the run-up to Katrina, and then Rita, there were many warnings of impending gasoline shortages and increase in prices. And indeed, prices did rise significantly and there were shortages in the south. But overall, the impact as been fairly moderate compared to some of the more dire predictions.

This may be why:


The Oil Drum reminds us of this:

A year ago we imported 720,000 bd of gasoline, now we are importing over 1.5 mbd. The reason, of course is the continued outage of refineries. But given that the world is in a bit of a hurt on supplies, one must presume that this is still coming from loans from reserves as agreed by the IEA [Europe primarily]. But that has to be coming to an end within the next few weeks. If, we then have to go into a bidders war to gain gasoline at others expense, then it could start to get messier, as more nations may face problems as the price goes up, and induces more demand destruction as the US market demand prevails.

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The other thing that is bothering, however, is that everyone seems to be assuming that if we can only get through the next month or so, that things will return to an even keel. But they weren't on an even keel before

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And remember that the MMS is still reporting that close to 1 mbd of oil is shut-in [closed down], while, now that other disasters have moved the hurricanes and their effects off the front page, demand for gas is beginning to creep up again. I get the feeling of one shoe having fallen, while, as yet, the second hangs, poised in the air somewhere over our heads.

The optimistic estimates are that the Gulf refining production can recover by the end of the year. I think that may be a bit optimistic because the Gulf was still recovering from hurricane Ivan when Katrina hit. Even if we assume the U.S. refining capacity is back by early 2006, oil production is likely to take much much longer due to rig damage. This means a further tightened oil market is a reality through 2006. That is unless there's a world recession.

In the long run, let's also not forget hurricanes. Even those who don't believe global warming is a part of the current phenomena of increased storms, the weather consensus is that we're in a five to ten year cycle of increased numbers and intensity of hurricanes.

Bottom line? Don't be looking for any long term relief in energy prices unless there is a collapse in demand caused by a significant U.S. recession.