Oil experts see less damage than Katrina...

As hurricane Gustav made landfall on Monday, the oil industry predicted it would leave far less lasting damage than the devastation that followed hurricanes Rita and Katrina three years ago.

Gustav raced across the Gulf of Mexico, the heart of the US’s oil and gas production, so quickly that it had less time to strengthen before reaching land 70 miles south-west of New Orleans. “This is not going to be anything like what we saw three years ago,’’ said Kenneth Medlock III, energy expert at Rice University.

Not only did hurricane Gustav not strengthen as much as Katrina, but the surges it was expected to bring with it were also significantly smaller. It will take oil companies several days to gather the evacuated staff and helicopters it needs to assess Gustav’s impact.

But analysts are confident most oil and gas platforms, rigs and pipelines, which usually produce 20 per cent of the US’s oil and gas but were largely shut to limit damage from the storm, could be up and running by the weekend as long as pipelines lying the sea bed had remained unharmed. One area of concern, however, was the Louisiana offshore oil port, which was directly in Gustav’s path.

If the industry is indeed able to get on its feet quickly, any long-term impact on petrol production would prove minimal. Indeed, even as the storm hit Monday, oil prices fell $4 a barrel to about $110 a barrel.

Not only did oil traders bet hurricane Gustav would prove far less devastating than twitchy politicians were predicting but they felt confident George W. Bush, president, would order the release of emergency petroleum reserves if platforms and refineries suffered significant damage.

Nauman Barakat, senior vice-president at Macquarie Futures, said: “I think he is looking for an excuse to release crude from the SPR [Strategic Petroleum Reserve]. This would give him the chance to do it and argue he was doing it because there was a shortage and not for market reasons [ie to drive down oil prices].”

President Bush had come under considerable political pressure last year for continuing to fill the SPR. Critics said he was driving up prices. By releasing some crude oil he could argue his decision to continue to fill the SPR had been correct. But, more importantly, he could significantly reduce oil prices, scoring a political victory by pleasing cash-strapped drivers just before the November presidential election.

The International Energy Agency, the energy watchdog that co-ordinates the international release of emergency stockpiles, including from the SPR, was yesterday monitoring hurricane Gustav and stood ready to make a decision to release stocks almost immediately, its officials say.

But all that may not come to pass if Gustav proves relatively benign, as initial estimates predict.

There are other factors also working in the oil industry’s favour. Traders pointed out flooding was likely to be less devastating because town levies had been strengthened and refiners had beefed up their defences.

Meanwhile, general market conditions are also less tight than they had been before Rita and Katrina. Refineries have been running at only 87 per cent capacity, compared with 95 per cent capacity in 2005.