Friends, Given the relative mildness of Rita, compared to Katrina, some of you may be thinking that I was way out of line with my 'national emergency' posting. My own reaction is that I was wrong about the worst scenario - the large-scale destruction of rigs and refineries - but that it is too soon to tell how much of an 'oil shock' is likely to occur. Consider this excerpt from this NY Times report: The situation was less sanguine in and near Port Arthur, Tex., and Lake Charles, La., near the Texas-Louisiana border, where officials said they expected refineries and industrial plants to be out of service longer because of heavy wind damage, power failures and scattered flooding. Depending on how much of the nation's already stretched refining capacity is affected and for how long, that could cause shortages of gasoline and other fuels and push up retail prices again. With even this much damage, plus Katrina, we cannot know - as the NY Times says - just how much fuel prices will rise. There certainly will be some natural 'market forces' increases, and the oil cartel has the power to increase prices still further if they choose to, under the cover of the 'natural' increase. I had already read in mainstream reports, prior to Rita, that the Katrina increases had only begun, that there would be more increases as the effects of lowered supplies gradually 'reached the street'. Rita, though milder than predicted, can only add to this increase trend. In addition, there is the longer term effect of the rapidly increasing fuel requirements of China, which is one factor that would encourage the cartel to 'adjust prices' upward, so as to profit at China's expense in a 'higher demand' era. How much might prices go up, over the next several weeks? 50%? 100%? Would anyone be surprised? Even at 50%, as a 'stable' new price level, that represents quite an economic shock. It significantly affects hauling prices, food prices, and indirectly all prices. Keep in mind that these increases go directly to the 'bottom line' of commercial consumers. Even if the absolute increase is not impressive, the marginal increase is still very large compared to commercial profit margins, so that the entire increase would need to be passed on to customers. Increased wholesale prices then get multiplied at the retail level. These kind of increases would be significantly inflationary, and the Fed is likely to respond with interest hikes, which were already in the works anyway. The scenario is unfolding slower than I feared it might, but the essential 'oil shock' picture remains. Although at a slower rate, I still suspect that we will see big increases in food and other commodities, and that the housing bubble is likely to be punctured. Defensive measures by consumers are still recommended. we'll see, rkm PS> for those who realize that weather control is a deployed technology... Rita changed course a few days ago, and then headed in a straight line, so that the strongest winds would hit the refineries at Port Arthur. A possible scenario is that they could steer the hurricane, but had no way to stop the dissipation of its energy, so that they were unable to cause as much damage as they hoped for. In the case of Katrina, there's a very interesting photo that reveals what appears to be an ionization column extending upward from the eye of the hurricane. This would be the steering mechanism. The photo is on a government website: http://www.noaanews.noaa.gov/stories2005/s2496.htm The interesting photo is the second one down on the right. On some of the other photos, you can see reflections from interior of the plane, but the ionized column is clearly not an interior reflection. rkm -------------------------------------------------------- http://www.nytimes.com/2005/09/25/national/nationalspecial/25refine.html September 25, 2005 Refineries Escape Major Damage, but Gas Prices May Still Rise By SIMON ROMERO and VIKAS BAJAJ TEXAS CITY, Tex., Sept. 24 - Hurricane Rita caused some damage to oil refineries near the Texas -Louisiana border and raised the prospect of gasoline shortages and higher prices during the arduous process of restarting refineries all along the Gulf Coast. But it did not cause the widespread destruction of the energy infrastructure that some had feared. On the edge of this workaday city of refineries and modest ranch houses near Galveston, a flare burned silently from a tower at the large B.P. refinery on Saturday afternoon, evidence that it was largely unscathed. Up and down the energy corridor between Galveston and Houston, industry officials said refining locations had managed to avoid extensive damage from the hurricane, which made landfall to the east, near the Louisiana border. Refineries sat waiting for workers to return to assess their conditions. In Texas City, there were no signs of wind damage or flooding at any refining installations. Egrets gathered in the marshes in the shadow of refineries and petrochemical complexes owned by energy giants like Valero, B.P., Marathon-Ashland and Praxair. A toppled sign from a Phillips 66 gas station was the only indication that a hurricane's edge had passed through. The situation was less sanguine in and near Port Arthur, Tex., and Lake Charles, La., near the Texas-Louisiana border, where officials said they expected refineries and industrial plants to be out of service longer because of heavy wind damage, power failures and scattered flooding. Depending on how much of the nation's already stretched refining capacity is affected and for how long, that could cause shortages of gasoline and other fuels and push up retail prices again. "It looks like we may have dodged some of the bullet in terms of the impact," said John Felmy, chief economist for the American Petroleum Institute. "It certainly is better than if it had hit some of the bigger refining centers." Chuck Dunlap, who rode out the storm with 50 others at Pasadena Refining Systems, just outside Houston, said that at first glance, his plant and other facilities in the area appeared to have sustained limited damage. But even so, it will take a few days for his plant, which normally processes about 100,000 barrels of crude oil a day, to return to full speed. "We are actually walking through the plant and doing a more detailed inspection," said Mr. Dunlap, the refinery's president. "We won't be at full operations till midweek." As the hurricane approached Texas on Friday, Galveston and Houston seemed directly in its path, and had the storm plowed into those cities, laden with petroleum tank farms, refineries and natural gas processing plants, insurance experts feared that losses could have run to $30 billion. But initial estimates put insured damage at $5 billion or less. With hurricane winds extending 85 miles from the center of the storm, Galveston and Houston got heavy rain and strong gusts of more than 75 miles an hour, and they sustained scattered damage. Royal Dutch Shell and Valero Energy said their Houston-area plants would be restarted as workers returned and power was fully restored. Companies shut down 16 refineries that make up about 23 percent of the nation's capacity in the days before Hurricane Rita struck. Less than half of the facilities that closed were in or near Port Arthur or Lake Charles. Valero and Shell both said the wind knocked down cooling towers and power lines at their Port Arthur refineries, but they reported minimal damage from flooding. Valero said it would take two weeks to a month to complete repairs and restart the plant. Hurricane-damage experts said the destruction may have been limited because as the storm churned inland, the refineries were on its west side, where wind speeds are lower, according to Dr. Jayanta Guin, vice president for research at AIR Worldwide, a Boston firm that tracks hurricanes and the damage they inflict. Industry officials warned that the lack of obvious damage should not be read as assurance that things will quickly return to normal. Offshore oil platforms still need to be inspected, and restarting refineries, especially the kind of hulking operations that are common in the region, can take several days, even weeks. During that period, gasoline supplies may start to run short in much of the eastern half of the country, which gets most of its fuel from the Gulf Coast via pipelines. The largest of these, owned by Colonial Pipeline, was operating at about half its usual volume on Saturday because it had lost power at pumping stations. Retail gasoline prices rose to more than $3 a gallon after Hurricane Katrina. Regular unleaded gas sold for an average of $2.748 a gallon on Saturday, down from $2.755 on Friday, according to the AAA. Simon Romero reported from Texas City, Tex., for this article, and Vikas Bajaj from New York. Joseph B. Treaster contributed reporting from New York. Copyright 2005 The New York Times Company