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Mother Nature Wreaks Havoc With Oil Prices

NEW YORK -- Today, with oil prices hitting records and petroleum producers stretched to the limit to meet greater demand from not just the United States but from China, India and other developing countries as well, oil producers worry that hurricanes are as much a risk to a global shortfall in supplies as pipelines blowing up in Iraq or oil workers going on strike in Venezuela.

And with the margin of error so tight, a New York Times report reveals that even a temporary disruption of the deepwater platforms, rigs and sub-sea pipelines in the Gulf of Mexico -- a region that pumps one-quarter of American oil production -- could create big problems for energy producers and consumers alike.

"It's a new version of the butterfly effect," Larry Goldstein, the president of PIRA Energy Group, an oil consultancy in New York, told the Times. "A hurricane in the Gulf of Mexico can lead to higher prices around the world. That's how vulnerable oil markets are today to events outside of our control. And it shows how little room there is for errors."

The hurricane season this year has kicked off to its fastest start since 1851, with seven tropical storms, including two major hurricanes, reaching the gulf since June. On Tuesday, meteorologists at the National Oceanic and Atmospheric Administration stepped up their storm warnings and said they now expected an "extremely active season" with up to 21 tropical storms and up to seven major storms.

Last year, Hurricane Ivan, one of the worst to hit the gulf in the last decade, destroyed seven platforms in shallow waters, and severely damaged 24 facilities and 102 underwater pipelines. It was the most costly storm ever to hit the offshore sector, causing an estimated $2.7 billion in damage, according to International Petroleum Finance.

It took six months to repair damaged installations, fix severed pipelines and return oil and gas production to prestorm levels. In total, the storm cut 43.8 million barrels of oil, or 7 percent of the gulf's yearly output. It curbed gas production by 172 billion cubic feet, or 4 percent of the total yearly output, and cost an estimated $3 billion in lost oil and gas revenue.

As the extent of the damage caused by Hurricane Ivan sank in, oil prices on commodity markets surged 19 percent over the next two weeks, pushing above $50 a barrel last October. Oil is now trading at around $60 a barrel.

"The world has changed," Frank Glaviano told the Times. Glaviano is vice president for production for North and South America at Royal Dutch Shell, the biggest oil producer in the gulf. "Given the supply and demand situation around the world, it's true that any disruption in supplies is more important to markets than it was in previous years."
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