Hurricane Rita Wreaks Havoc on Energy Industry, Leading to Higher Prices and Economic Concerns

As Hurricane Rita made landfall on the Gulf Coast, it brought about $60 billion in damage, making it one of the 10 costliest storms ever. The hurricane struck less heavily populated areas than Hurricane Katrina, but its impact on the energy industry was still significant, leading to shortages of gasoline and heating oil. Analysts and government forecasters predict that prices will rise in the coming months, potentially cutting economic growth.

Key Takeaways:

• Hurricane Rita caused an estimated $60 billion in damage, with $35 billion covered by insurance companies and $25 billion in flood damage not insured or covered by government programs.
• The hurricane did less damage to offshore oil rigs, undersea pipelines, and onshore refineries than Katrina, but the precautionary shutdowns worsened a nationwide gasoline shortage and prevented refiners from building up stocks of home heating oil.
• President Bush called on Americans to conserve gasoline and avoid non-essential driving as retail gasoline prices climbed.
• The Energy Information Administration estimates that the country will spend 52% more on natural gas this winter than last winter and that heating oil prices will rise 31%.
• Consumer confidence and new-home sales fell sharply in August, reflecting sentiment after the hurricanes, while other economic measures indicated that the economy was expanding before the storms.
• US Airways emerged from bankruptcy protection and merged with America West to create the country's largest low-fare carrier.
• Boeing and the International Association of Machinists and Aerospace Workers reached an agreement, with workers agreeing not to seek a raise for three years and Boeing agreeing not to ask employees to pay more for their health plan.
• The Russian government under President Vladimir V. Putin extended its control of the country's oil industry by directing Gazprom to buy the privately owned Sibneft for $13 billion.

Statistics:

• The estimated amount of damage caused by Hurricane Rita: $60 billion
• The amount of damage covered by insurance companies: $35 billion
• The amount of flood damage not insured or covered by government programs: $25 billion
• The record high price of natural gas: $14.20 per thousand cubic feet
• The forecasted increase in natural gas spending this winter: 52%
• The forecasted increase in heating oil prices: 31%
• The drop in the consumer confidence index: 18.9% from 105.5 to 86.6
• The decline in new-home sales: 9.9%