Hurricane Katrina causes upwards of $12bn of damage; oil prices surge

Monday, August 29, 2005

Hurricane Katrina is now over the U.S. mainland and has caused more than US$12 billion of damage. Some estimates are as high as $30 billion.

New Orleans was spared the most intense winds as the hurricane weakened as it made landfall, and its track turned slightly east, away from the city. However, the area was still subjected to sustained winds of more than 100mph, and rainfall as heavy as six inches per hour.

Future prices of crude oil rose above $70/barrel in the U.S. on Monday in the wake of Katrina’s surge through oil and refinery processing facilities in the Gulf of Mexico. The storm forced operators to shut down an estimated 1 million barrels of daily refining capacity in the region that accounts for nearly a quarter of total domestic production.

A U.S. spokesman for the Bush administration said the government will consider releasing crude oil from the Strategic Petroleum Reserve if requested by refiners. OPEC has pledged to blunt the impact by increasing production to compensate.

White House spokesman Scott McClellan told reporters that Michael Brown, the director of the Federal Emergency Management Agency (FEMA), briefed Mr. Bush before he left his Texas ranch for Arizona where he will deliver a speech on Medicare. Brown said it would take time before an assessment is possible for when refineries could resume activity.

President Bush authorized loans from the strategic reserve to help make up for missing supplies when Hurricane Ivan struck in 2004.