Transcripts

Hurricane Katrina Causes A Storm Of Uncertainty In Oil

SUSIE GHARIB: A volatile day in the oil markets. Oil prices dropped in reaction to new data showing hurricane Katrina`s impact on the nation`s petroleum supplies was not as bad as many had feared. But crude futures bounced back by the close, edging up $0.12 to $64.49. As Erika Miller reports, there`s considerable debate about where prices head from here.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Shoulder to shoulder, traders shouted, jumped and waved, eager to trade crude oil in reaction to the government`s inventory data. The report showed Katrina`s damage to energy supplies was not nearly as bad as expected. The October crude contract fell as low as $63.10 before recovering.

JAMES STEEL, COMMODITIES ANALYST, REFCO: We were expecting large stock declines. We did get large stock declines, but not as bad as we had feared.

MILLER: Crude oil inventories fell by 6.4 million barrels last week and gasoline supplies shrank by 4.3 million barrels. Distillate inventories, which include heating oil, dropped by 800,000 barrels. There`s wild disagreement about where crude prices head from here.

RAYMOND CARBONE, OIL TRADER, PARAMOUNT OPTIONS: I think many traders would say they wouldn`t be surprised if we go to $55, but they certainly wouldn`t be surprised if we went to $75.

MILLER: Those in the $55 camp say there has been major progress in rebuilding Gulf coast oil production and refining operations after hurricane Katrina. Plus, members of the International Energy Agency will release about two million barrels of petroleum products a day to ease shortages. Now that the summer driving season is ending, there could be a decline in demand for gasoline and a decline in demand for crude. But some traders expect demand for crude could actually increase in the coming weeks, pushing prices higher. They predict high natural gas prices will force many power plants to use residual fuel, a crude derivative for their power generation. But there is one thing traders seem to agree on: crude prices are likely to be especially volatile in coming weeks.

CARBONE: This market has never been more vulnerable to another hiccup, disruption, geopolitical event, than it is now. We`re already tense. We were tense before Katrina. And things are just been made worse by that event.

MILLER: Analysts say it could be several weeks before they have an accurate read of Katrina`s impact on oil inventories. That`s because there`s often a lag time before a significant supply disruption shows up in the government`s data. Erika Miller, NIGHTLY BUSINESS REPORT, New York.