NEW YORK – Shares of oilfield services companies and refinery operators rose for the third straight day on Wednesday in the wake of Hurricane Katrina (search), as analysts said there was much work to do in coming weeks and months to restore the industry in the Gulf of Mexico.
The price of oil eased quickly after the Bush administration said it would release supplies from strategic reserves, but it bounced back just as quickly as analysts said the problem was not a lack of oil but a lack of refinery capacity to turn crude into needed products.
The Philadelphia Oil Service Index (search) was up 1 percent in early trading. The S&P 1500 Oil & Gas Equipment and Services index was also up about 1 percent.
"(The) beneficiaries of Hurricane Katrina should continue to be the offshore stocks, similar to the 4-6 weeks following Hurricane Ivan (search)," Banc of America Securities said in a note, referring to the 2004 hurricane that caused extensive damage to the oil industry in the Gulf of Mexico. "Damage to rigs reduces capacity and raises pricing."
On Tuesday morning, about 95 percent of Gulf of Mexico (search) oil production was shut in, the government said. Gulf output is responsible for about 25 percent of U.S. oil production.
A number of companies reported rigs either adrift, run aground or completely lost, though the losses were insured. In total, Katrina is expected to result in insured losses of more than $25 billion.
Even before Katrina, U.S. refining capacity was stretched thin. Market strategists said the release of crude from the Strategic Petroleum Reserve would not address that issue.
"It's all very well releasing a little bit of extra oil, but the other problem is logistics with refining. Refining capacity is under serious pressure in the South of the U.S., and extra supply isn't going to alleviate the refinery shortage," said Jeremy Stretch, market strategist at Rabobank.