Wednesday, September 21, 2005

Rita May Wash Up US Economy

The company I work for is scrambling to recover from "hyperinflation" in the first half of this year in the cost of chemicals and plastics derived from petroleum. To achieve that recovery, the corporate strategy was to squeeze other suppliers, extend payment terms and put an almost complete clamp on discretionary spending.

Two hurricanes are going to wash that strategy away. The Katrina effect - a 50% jump in gasoline costs and a 100% jump in natural gas costs will swamp each and every one of my company's cost cutting measures. Hurricane Rita may drive the cost of gasoline up by as much as another dollar a gallon and make natural gas heating and energy production cost prohibitive. If you are looking for a stock buy, look to textiles and woolen goods. There is going to be a run on sweaters and blankets this winter.

According to Reuters, oil executives see the potential for Rita to be a major disaster. A disaster that will have a larger economic effect that Katrina's destruction of an entire city.

"Valero Energy Corp. Chairman and Chief Executive Bill Greehey said Hurricane Rita's impact on U.S. crude oil production and refining could be a "national disaster."

"If it hits the refineries, and we're short refining capacity, you're going to see gasoline prices well over $3.00 a gallon at the pump," Greehey said in a Tuesday night interview.

"It's going to be coming across the (U.S.) Gulf (of Mexico)," Greehey said. "There's a lot of oil platforms, oil rigs, (natural) gas platforms, gas rigs. It could have a significant impact on supply and prices, and then, depending on what it does to the refineries, there are still four refineries that are shut down. So this really is a national disaster."

Refineries in Houston and Texas City process 2.3 million barrels of crude oil or 13.5 percent of daily U.S. refining capacity. The Beaumont-Port Arthur, Texas, refineries account for another 1.1 million barrels in refining capacity."

Still a two and a half month to go in hurricane season.