Crude oil prices fell to the lowest level in five months as energy companies prepared to restart production in the gulf. Shell, Total and Conoco Phillips said they were inspecting gulf platforms on Wednesday and so far there had been no major damage. All the production in the gulf was still shut in on Wednesday but the majority of it is expected to be back online by next week.
Gustav turned out to not quite be the storm of the century but it easily could have been. What prevented more damage was the reaction to the 2005 storms and the extra precautions mandated after that disaster. There are stronger moorings and higher platforms to avoid being buffeted by the high waves. The addition of transponders to thousands of platforms allowed energy companies to know almost instantly that every platform was where it should be after the storm passed.
Just dodging the Gustav bullet does not give us a free ride the rest of the year. There are three more storms, Hanna, Ike and Josephine heading our way. Hanna has already killed 21 in Haiti and has started to resume its path north to somewhere in the Carolinas. Ike is the next problem. It has already grown into a category 4 hurricane with winds in excess of 135 mph. It is heading towards the Caribbean and should arrive this weekend. Forecasters have not yet plotted a course after it reaches the Bahamas. Josephine is still in the formation stages and following in Ike's path.
The coast guard did an aerial survey of the oil patch on Wednesday and found no structural damage and no oil spills. A flight over the lower Mississippi found only oil leaking from a sunken tugboat. The Citgo refinery requested a release of 250,000 barrels of oil from the Strategic Petroleum Reserve and the request was granted. Over 1 million barrels per day of gasoline production is offline from the power loss to the refineries. Louisiana refineries will take about 10 days to resume operations because of the lack of power. Companies impacted are Marathon, Valero and Exxon. Conoco said the 247,000 bpd Alliance refinery in southern Louisiana sustained minor damage and they would provide a target date for reopening once a full assessment is made. The closed refineries have a total capacity of 2.484 mbpd of all liquids.
The weekly government oil inventory report will be released on Thursday this week due to the holiday. Expectations are for a minor decline because the period covered was before Gustav arrived. Next week's report is going to be the one with the major drop. Gasoline levels fell -13% in the last five weeks to 60.85 million barrels and the lowest level in 10 months. 85% of the service stations in southern Louisiana had run out of fuel by Wednesday. 1.4 million homes were without power.
The total impact from Gustav is expected to be lost production of 13 million barrels of oil and 70 billion cubic feet of gas. Because we consumer every drop produced every day this will be a direct hit to the existing inventories. The production did not go anywhere it was just halted. That is the same as lost since it will take months to replenish inventories.