Energy prices likely to escalate, analysts report
By the OGJ Online Staff
HOUSTON, Sept. 11 -- Terrorists attacks in New York and Washington, DC, will surely drive up energy prices at least for awhile, industry analysts reported late Tuesday.
"Anytime you have a significant event with a dangerous impact, tantamount to the Persian Gulf crisis or any number of events in the past, it always generates market concerns that trigger a precipitous price increase," said Raymond E. Ory Jr., vice president and manager of the Houston office of Baker & O'Brien Inc., an energy industry consultant firm.
On the International Petroleum Exchange in London, the October futures contract for North Sea Brent crude closed at $29.06/bbl Tuesday, up $2.15 for the day after rising more than $3/bbl in some trades following the attack on the World Trade Center in New York.
US newswire services were reporting gasoline pump prices of $4/gal in some areas of the country late Tuesday, with rumors of prices exceeding $5/gal at other locations.
Still, Ory said, "The energy market will stabilize again. I wouldn't want to guess how long it will take, but the market will work itself out in a relatively short time from a business standpoint."
Marshall Adkins, analyst with Raymond James & Associates in Houston also expects an immediate price spike in oil markets. "The knee-jerk reaction will drive the price up for the short term. The long term impact depends on who did it," he said.
If the culprits were associated with a member country the Organization of Petroleum Exporting Countries or someone close to OPEC, the long-term impact could be strong. It would depend on the response of the US to this situation, said Adkins.
But it is more than likely the responsible parties are associated with Afghanistan, which means there is not likely to be a long-term impact on prices, he said.
While Adkins doesn't expect an impact on the supply side, he does expect the demand side to be affected by the catastrophes.
"On the demand side, there is a clear fundamental negative here," he said.
The first bombing of the World Trade Center in 1993 helped chill consumer demand for a while, Adkins recalled.
Executives of the New York Mercantile Exchange, located in New York's World Financial Center in the shadow of the twin towers that collapsed following a terrorist attack, are scheduled to meet Wednesday to assess trade operations. Regular NYMEX trade of energy futures may not resume for at least a week, Ory said.
However, some trading of energy futures may resume prior to that, possible through the electronic market, Ory and other energy analysts told OGJ Online late Tuesday.
"Although this terrorist attack is horrific," Ory said, "it's really a political and a human crisis. No oil production or energy consumption is affected."
The outcome depends to a large degree on market perceptions. "If everyone becomes concerned about futures supplies and starts topping off their gasoline tanks tonight, it could become a self-fulfilling prophecy," said Ory.
The most long-lasting effect on the US economy may depend on "how many CEOs and heads of what important companies" died in the collapse of the twin towers of the World Trade Center.
"That could have both direct and indirect ripple effects through the economy that could take some time to stabilize," Ory said.