An Evening Note on Katrina

Katrina seems to be weakening slightly, so that it may come ashore as a strong Category 4, rather than a weak 5, and is, according to MSNBC, is moving slightly east. (Here's a link to the NOAA discussion where they say the same thing.) There is apparently change going on in the eye of the storm that makes it more difficult to be accurate.  Nevertheless predictions are that power will start to go out in a couple more hours along the coast and that the damage will start to build from there. At least 50% of NO is anticipated to be flooded.  While everyone is focusing on the time that the storm "comes ashore" remember that this is only half-way through the storm activity, and while the power then starts to fade, the large size of this storm (200 mile diameter) and 10 mph speed means that it might not be well into tomorrow evening before the storm has fully passed.

The Kuwaiti Energy Minister is quoted by Forbes as saying

Oil resources and supplies are plentiful and OPEC has been producing more than its agreed output by 1.5 mln barrels per day (bpd) in the three quarters of 2005,' Sheikh Ahmed said.
It is a pity that this must have been used, (since it is not lying around waiting for a buyer or anything...*sarcasm*), as there is little doubt that over the next three months we could likely use that input to offset the temporary loss we are about to see. (Thanks for the tip).

Update [2005-8-28 20:52:49 by Prof. Goose]:Note the new Red Cross box in the upper right hand corner. We will all have to do without the pithy quotes for the time being. That cause is much more important.

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I'm watching CNN headline news hoping they drop some tidbit about what the government reaction is to Oil soaring over $70/barrel tonight.

Instead the headlines seem to suggest that oil prices may ease now that the summer driving season is ending and OPEC has made some vague statement about encouraging more production. This is nuts. Is anyone awake at the wheel? Or is this just Sunday night auto-pilot loop?

People are not going to know what hits them tomorrow.

Apparently CNN is going to talk about gas prices sometime soon. Stay tuned.
Ok, I'll keep watching. The morning news should be pretty interesting as gas prices may go above $3.00 in some places. I'm flipping between Bloomberg and CNN. Bloomberg coverage is better but not really sounding an alarm bell at all.
Well, Aaron Brown on CNN just reported $70+ at the open of the markets tomorrow. But no mention of what consequences will be.
Bloomberg News is talking about the impact of oil prices on Asia. Could have severe economic impacts on growth...

Saw the CNN main channel now and they are talking about oil now.

What is the upper limit that we could predict the barrel of oil jumping to?

Most people seem to instinctively think "over $70", but what if some oil production gear is REALLY badly damaged and inoperable for a while, could it trigger some kind of chain reaction and bring oil over $80/bbl? $90? $100?

IF later in the week reports of significant damage that has months written on it in terms of repair, then chances are high crude will push to 73, pause to catch its breath and then head up beyond 80. All depends on how big and how long term the problem is.
I found this somewhere today:  the maximum increase (crude futures) for one day on NYMEX is $10.00 then they stop trading, so we could conceivably see $78.00 on monday.  The options contracts are limited to $7.50 per day I think...Can anyone confirm this?  
I think There is a  time limit of an hour imposed when prices move by $10.Trading stops and then restarts. I remember reading this somewhere. Sorry I am not sure. In my opinion with refining capacity down more than crude oil production capacity that may set a ceiling on the price.
I think 5,000 rigs is a little/lot high.  I think there are about 1,000 "rigs" in the GOM, but I don't know what the split is between drilling "rigs" and production "platforms" is - any help?
I stand corrected - CNN "more than 4,000 floating rigs and surrounding production platforms dot the GOM".  It appears that a rig can have some platforms floating in close proximity... these don't seem to manned, though...
comment from NY Times on refineries shut in by Katrina
hello all... my first post here!

just wanted to pass this on:

"The storm is more severe than we've thought; it's turned into a monster,'' said Paul Sankey, senior oil analyst with Deutsche Bank Securities in New York. ``The amount of lost production is equal to almost all the spare capacity in the world.''


Professor Goose. The maximum daily limit on crude futures is $10. you are right about that. there is no daily limit on options. an options market without daily limits allows futures traders who are trapped in the wrong direction by a daily limit, to hedge.
good point HO, as I said in an earlier comment:

what was the Iraqi disinformation minister's name again?  is he working for the Saudis now?  :)  

A-ha, found it.  Mohammed Saeed al-Sahaf, Iraqi Minister of Information

dumb bastards don't expect that we will realize that it's really crappy oil that costs ridiculous amounts of money and investment to refine, eh?

Morons.  We're not THAT stupid.

HO's "I am taking this as "we don't know what's going on" from the NHC".

That is also my interpretation. However, at 904 mb this is the second worst hurricane of all time (after the Labor Day Weekend storm of the 1930's). Also, it's the size of this sucker that frightens me. Did you catch where they said
In any case, there's little time for significant weakening in any event, we're only a few hours away from landfall now. And no chance for a significant change of the storm track.

My prayers go out for the people of New Orleans and the Gulf coast.
Here is the complete text on daily limits, from the NYMEX websites

Maximum Daily Price Fluctuation

$10.00 per barrel ($10,000 per contract) for all months. If any contract is traded, bid, or offered at the limit for five minutes, trading is halted for five minutes. When trading resumes, the limit is expanded by $10.00 per barrel in either direction. If another halt were triggered, the market would continue to be expanded by $10.00 per barrel in either direction after each successive five-minute trading halt. There will be no maximum price fluctuation limits during any one trading session.

One issue we haven't discussed is oil-related pollution. It's an obvious problem if you start knocking over oil rigs and refineries. From CNN (

Floodwaters from the east will carry toxic waste from the "Industrial Canal" area, nicknamed after the chemical plants there. From the west, floodwaters would flow through the Norco Destrehan Industrial Complex, which includes refineries and chemical plants, said [Ivor] van Heerden [Director of the Louisiana State University Public Health Research Center in Baton Rouge], who has studied computer models about the impact of a strong hurricane for four years.

"These chemical plants are going to start flying apart, just as the other buildings do," he predicted. "So, we have the potential for release of benzene, hydrochloric acid, chlorine and so on."

That could result in severe air and water pollution, he said.

In New Orleans, which lies below sea level, gas and diesel tanks are all located above ground for the same reason that bodies are buried above ground. In the event of a flood, "those tanks will start to float, shear their couplings, and we'll have the release of these rather volatile compounds," van Heerden added.

Because gasoline floats on water, "we could end up with some pretty severe and large -- area-wise -- fires."

"So, we're looking at a bowl full of highly contaminated water with contaminated air flowing around and, literally, very few places for anybody to go where they'll be safe."

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