Will Gustav Raise or Lower Crude Prices? (XOM, RIG, RDS, COP, CVX)

Hurricanes Katrina and Rita in 2005 forced a halt to about 25% of US oil and natural gas production. Now Tropical Storm Gustav, which is predicted to gain hurricane status by the weekend, is drawing a bead on Gulf of Mexico production facilities and crude oil prices are beginning to rise as companies shut down operations and evacuate workers.

Exxon Mobil (NYSE:XOM) has not yet begun to evacuate workers from its offshore platforms, but has begun planning a staged evacuation as Gustav gets closer. Transocean (NYSE:RIG) has already brought about 400 workers ashore and plans to move its remaining eight semi-submersibles, with 1,500 more employees on board, out of harm’s way. Royal Dutch Shell (NYSE:RDS.A/RDS.B) has already evacuated 750 workers from Gulf platforms and plans to withdraw the rest today. ConocoPhillips (NYSE:COP) has already shut-in its only Gulf platform, and Chevron (NYSE:CVX) has begun evacuating workers for some of its platforms. Plans are also being made to close down the 57 onshore refineries along the Gulf coasts of Texas and Louisiana.

According to a survey by Bloomberg News, 11 of 29 analysts believe that crude prices will rise through September 5th, while 9 believe prices will fall, and another 9 don’t think there will be any change. The International Energy Agency (IEA) said yesterday that it would open its strategic reserves if Gustav causes the same sort of disruption that Katrina and Rita did. The US Department of Energy, which has been very reluctant even to refer to the US Strategic Petroleum Reserve of more than 700 million barrels, has indicated that it "stands ready to use every available tool to ensure continuous and reliable supplies of energy in the event of a disruption." One assumes this statement includes tapping the SPR.

Crude oil is up about $2.50/b on the NYMEX this morning, and gasoline is up about $0.045. A firmer statement on the government’s determination to use the SPR would go a long way to curbing big jumps in crude prices as Gustav moves closer to the Gulf.

Paul Ausick