Accessibility links

Breaking News

World: Hurricane Katrina Sends Oil Prices To New Peak

The price of oil hit another new high on 29 August -- just over $70 a barrel -- as one of the biggest hurricanes to hit the U.S. forced much oil and gas production to shut down along America's southern Gulf Coast. The rise prompted concern from the head of the OPEC oil cartel. Some experts are warning the price could rise further and could top $80 a barrel.

Prague, 30 August 2005 (RFE/RL) -- Workers are kept busy at the Bangkok factory of Thai Summit, a successful car-parts company.

But its executive vice president, Thanathorn Juangroongruangkit, says rising oil prices have put a sizeable dent in profits.

"Oil prices, raw material prices, so all these costs have eaten up our profit margin. We have lost somewhere around 5 percent of our profit margin due to the higher cost. [Five] percent in business is significant," Juangroongruangkit says.

Thai Summit is not the only one hurting.

Businesses across Asia -- among other energy-importing countries -- are feeling the brunt of high crude oil prices, which rose this week to just over $70 a barrel.

To be sure, that's still not as high as in the 1980s. That was when, if you adjust for inflation, the prices soared above $95 a barrel.
"If we have a colder than normal winter, we're really in deep trouble."

But current prices are still more than 50 percent higher than what they were just one year ago.

The immediate cause was Hurricane Katrina, which lashed the southern coast of the U.S. yesterday and forced much of the region's oil and gas production to shut down.

But there are longer-term, underlying reasons, as Manouchehr Takin of London's Center for Global Energy Studies explains.

"In the last two or three years we've had growth in demand on the back of a healthy economic performance around the world -- the U.S., China, and so on. Annual increase in demand used to be about 600,000 to 700,000 barrels per day in previous years," Takin says. "In 2003, it was about twice that, in 2004 it was 4.5 times that. [But] the world supply [from industry, drilling, and exploration] has not been able to meet this increase in demand, and OPEC has had to provide the extra oil supply. Now we don’t have such a huge spare capacity of production as OPEC did in the previous years. [It used to be] 5 million, 6 million barrels. Now we have 2 million."

With that as the backdrop, any event that disrupts oil supply prompts fears of a shortage.

This week it was Katrina; last week it was a relatively small temporary shut down of oil production in Ecuador.

Anette Einarsen is an oil analyst at Nordea Bank in Oslo.

"The oil market is vulnerable to any supply disruptions. That's why we see strong impacts on oil prices," Einarsen says.

The price rise prompted concern from the secretary-general of the OPEC. Anan Shihah-Eldin said today it "did not reflect [economic] fundamentals."

So will prices remain high -- or even climb further?

Some experts have forecast further rises towards $80 -- or even $100 -- a barrel.

Einarsen says prices could remain around current levels for the next few months, but adds that any unforeseen setback could send prices even higher.

"If we get another hurricane that has a huge impact on disruptions, we could see prices go higher," Einarsen says.

Others say it's difficult to speculate on prices until it becomes clear how much damage Katrina has done to U.S. oil facilities.

Fadel Gheit is an analyst at Oppenheimer and Company in New York.

"The longer-term problem is some of this production might not come back, or will come back in a very long period of time. So that will definitely stretch things out and we are getting into the home-heating season. If we have a colder than normal winter, we're really in deep trouble," Gheit says.

However, such is the unpredictability of forecasting oil prices that there's another possibility.

That is that high oil prices will lead to slower-than-expected global economic growth, less demand for oil -- and lower prices.

(Reuters contributed to this reports.)

RFE/RL has been declared an "undesirable organization" by the Russian government.

If you are in Russia or the Russia-controlled parts of Ukraine and hold a Russian passport or are a stateless person residing permanently in Russia or the Russia-controlled parts of Ukraine, please note that you could face fines or imprisonment for sharing, liking, commenting on, or saving our content, or for contacting us.

To find out more, click here.