Natural gas futures soared to a record, oil leaped more than $4 a barrel and wholesale gasoline prices raced higher Monday on fears that Tropical Storm Rita would gain strength and slam into the Gulf Coast, further disrupting vital production.
Oil companies eyeing the approaching storm began evacuating employees from platforms in the Gulf of Mexico, halting some oil and natural gas production as well as slowing repair work on facilities damaged by Hurricane Katrina at the end of August.
Retail gasoline prices, meanwhile, continued falling, with California’s statewide average for a gallon of regular gasoline dropping below the $3-a-gallon mark for the first time in three weeks.
Experts have warned that the downward slide at the pump will probably end because of the lingering effects of Katrina and the new production and shipping delays wrought by Rita, which could hit Texas, Louisiana or Mexico by this weekend. In addition, energy regulators and others have begun to sound the alarm over winter heating bills, which will be sharply higher this year because of the rising cost of natural gas and heating oil.
“We’re looking at a second wave to this energy shock,” said Ed Silliere, a trader for Energy Merchant Corp. “Now we get Rita, which could plow all the way to the Texas refining sector ... there’s a real fear in the market.”
The Gulf Coast region is the nation’s energy capital, home to nearly one-third of U.S. daily oil production, about 20% of the natural gas output and nearly half of the nation’s refining capacity. Some of the largest refineries in the United States are clustered along the Gulf of Mexico’s coastline.
Given the gulf region’s importance to U.S. energy supplies, “it would be a bad, bad blow to the economy if it takes another hit,” said Paul Boland, an energy trader at Alaron Trading Corp. “We’re already at a critical point.”
On Monday, natural gas staged the biggest move among energy futures, rising $1.519 per million British thermal units, or 14%, to $12.663 per million BTUs on the New York Mercantile Exchange. About 34% of the gulf’s normal daily production of natural gas remains off line because of damage from Katrina, according to a report Monday from the federal Minerals Management Service.
“We’re looking at a very lean situation for gas this winter,” Silliere said. “If there’s damage from Rita, it will be a short to even a desperately short situation.”
Oil futures Monday jumped $4.39 -- the contract’s biggest one-day price increase -- to $67.39 for a barrel of light sweet crude on Nymex as investors shrugged off signs that the Organization of the Petroleum Exporting Countries would offer world markets an extra 2 million barrels a day of crude oil in an effort to ease prices.
“They don’t want to be blamed for derailing the world economy,” said Fadel Gheit, senior energy analyst at Oppenheimer & Co., “but it’s outside of their control” because OPEC has little extra capacity to boost production to keep up with growing demand or to offset lost production in the gulf.
More than half of the Gulf of Mexico’s crude oil production remains shut down because of damage from Katrina to offshore platforms and related onshore facilities, the Minerals Management Service said. The production cuts are bound to worsen, at least temporarily, because Chevron Corp., Shell Oil Co. and BP began evacuating employees from oil platforms Monday.
On Monday, the Energy Department approved its seventh oil company request for a loan of crude oil from the nation’s Strategic Petroleum Reserve, bringing the total amount of oil released since Katrina hit to about 24.2 million barrels. The U.S. consumes about 20 million barrels of oil a day.
The picture was mixed on the gasoline front.
The futures price on the Nymex rose 25.76 cents to $2.043 for a gallon of regular, reflecting worries that fuel production at Gulf Coast refineries could be temporarily curtailed -- or worse -- by Rita.
Retail prices, however, continued to fall from the record highs that stunned consumers in the days after Katrina knocked several refineries offline. Four refineries remain closed, though Chevron said Monday that it hoped to restore full production at its Pascagoula, Miss., facility by mid-November.
Nationwide, the average price for self-serve regular fell 16.9 cents over the last week to $2.786 a gallon Monday, according to the federal Energy Information Administration’s weekly survey. In California, the average cost eased 5 cents to $2.954 a gallon.
Even with recent declines, gasoline prices remain well above year-ago levels, triggering calls for consumer protections against gouging.
Concern also is growing that low-income households and others will struggle to pay their heating bills this winter. Since last September, natural gas prices have more than doubled and the cost of heating oil has increased by 80%, according to a collection of state energy regulators and others that on Monday urged Congress and President Bush to immediately increase subsidies and other energy relief programs.
The average family using natural gas will spend an estimated $1,568 this winter, an increase of $611 from a year earlier, according to the group, which includes the National Assn. of Regulatory Utility Commissioners, the National Assn. of State Energy Officials and the National Energy Assistance Directors Assn.
“This is going to be a horrific winter for all things with the word ‘gas’ in it,” said Michael Shames, executive director of the San Diego-based Utility Consumers’ Action Network. “And things could get uglier depending on Rita -- and if she brings along any other undesirable friends.”