Charlie's Diary

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Thu, 01 Sep 2005

The real end of the 20th century?

From The Guardian:

"It is now appropriate to talk of a major energy crisis after Hurricane Katrina pushed US energy markets beyond the edge," Barclays Capital said in a report.
The Mississippi River basin is home to a tenth of the country's oil refineries, churning out 1.8m barrels a day, as well as to ports that handle large imports of grain and fruits and warehouses that stock a quarter of US coffee supply.
Barclays Capital estimates that 20m-40m barrels of refined oil could have been lost, but no one has been able to penetrate the flood waters to assess the pipelines. If the damage is worse than expected, it could push crude oil prices to beyond the 1980s oil spikes from the Iranian revolution.

Oil is a fungible commodity. The price spike triggered by Hurricane Katrina is going to propagate through the oil markets world-wide over the next few days. Hopefully the trailed release of the US strategic oil reserves will dampen it down: but the question that needs to be asked is, can we increase capacity anywhere else? If the supply of oil can be increased we might be able to dodge the bullet, but if, as some sources suggest the big Saudi fields have passed their peak, we might end up looking back and seeing Katrina as the incident that finally toppled the global economy into a peak oil crisis -- the true end of the 20th century that began when, in Lord Curzon's words, the western allies of the first world war "sailed to victory on a wave of oil".

[Discuss Katrina]

posted at: 17:21 | path: /wartime | permanent link to this entry

Logistics watch

Reading between the lines of the Washington Post, the effects of Hurricane Katrina seem to be propagating down the supply chain. 10% of the United States' oil refinery capacity is offline. 5% of the world's oil supply is pumped from the Gulf of Mexico; there are reports that as many as 1 in 13 oil rigs there might have come through the storm without sustaining critical damage.

It takes time for a shortage to make itself felt, but filling station owners are already calling the situation a crisis and airport managers are worrying about resupply; one of the side-effects of the just-in-time logistics chain that has become the model of choice for efficient businesses over the past two decades is that there's no surplus capacity, no reserves that can be tapped to deal with a shortage.

Average petrol prices in the USA are now just under US $3/US gallon, or in real terms almost 50% of the UK retail price. however, Localized price spikes in the South have driven prices as high as $6/gallon in Georgia. Whether this is opportunistic gouging or a reflection of a real supply shortage remains to be seen, but if it's the latter the US economy is in for a very bumpy ride over the next month or two.

[Discuss Katrina]

posted at: 16:40 | path: /wartime | permanent link to this entry


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