Katrina and Oil Peak

The USA owns about 5 – 6% of the world’s oil producing capacity. Approximately 1/3 of that is in the Gulf. So, Katrina took out about 1.66 – 2% of the world’s oil capacity. An immediate run up in prices is epxected in the USA because of its proximity to the disaster and the crippling of the oil transporation infrastructure (pipelines, refineries) for a large chunk of the midwest and southeast. All told, however, this disaster represents a windfall for the world’s major oil producers. New Orleans and other effected areas represent a vanishingly small amount of the world economy, and over time natural disasters are good for GDP anyway (The $10.5 billion that congress appropriated is pure GDP upward arrow that would not have happend otherwise). So, with prices momentarily punched upwards, large producers like Saudi Arabia have an opportunity to make up for the lost Gulf production and make a tremendous profit.

If Saudia Arabia and others step into this new market then gas in the USA should settle at a national average of $2.80 or so a gallon in three months (Pre-Katrina they were about $2.69, so $2.80 represents price increasing as it was previously plus the extra USA cost of having to import more refined oil). If prices continue to stay at current Katrina Panic levels or above on Dec. 1 then it is a tell tale sign that OPEC countries inexplicably won’t reap the benefits of these artifically high prices, or, that they can’t.