by Calculated Risk on 9/01/2005 02:41:00 PM

From Reuters: Storm may shut refineries for months

The government warned on Thursday that some U.S. refineries shut by Hurricane Katrina may not resume processing oil for several months ...
...
"Some refineries likely (will be) able to restart their operations within the next 1 to 2 weeks, while others will likely be down for a more extended period, possibly several months," the Energy Information Administration said.

The Energy Department's analytical arm said nine major oil refineries in Louisiana and Mississippi remained shut from the hurricane. Those refineries account for about 11 percent of total U.S. refining capacity.

"Unlike 2004's Hurricane Ivan, which affected oil production facilities and had a lasting impact on crude oil production in the Gulf of Mexico, it appears that Hurricane Katrina may have a more lasting impact on refinery production and the distribution system," the EIA said in its most recent update on the effects of the hurricane on the energy sector.

This is a temporary refined products supply shock. See Dr. Thoma's overview of AD vs. AS shocks.

Some key points: Oil is a global market. The loss of production in the GOM will be felt worldwide. Gasoline is much more of a domestic market (and regional), though some refined gasoline is imported - so there is a global aspect.

A Supply Shock will force the reduction in consumption of refined products through higher prices (Rationing hasn't been mentioned yet). It is possible that this reduction in demand will lead to lower crude oil prices even though gasoline and other refined products will remain elevated.

Just musing about possibilities ...