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Hurricane Katrina Will Have Long-Lasting Effects on Energy Markets

The toll from Hurricane Katrina continues to rise as the extent of property losses and the cost to human lives becomes more apparent. The Mayor of New Orleans tells Associated Press that the death toll may be in the hundreds or even thousands.

But as VOA's Mil Arcega reports the impact from one of the biggest natural disasters to strike the United States is also being felt in the world's energy markets.

It may be one of the most expensive storms in U.S. history with damages expected to top $25 billion.

Officials say it could be 12 to 16 weeks before many residents are allowed to see their flooded or damaged homes, but the biggest urban disaster in US history is also creating tidal waves in the world's energy markets.

With over 20 oil rigs reported missing in the Gulf and the region's oil output down nearly 95 percent, speculation about increased demand is fueling a buying frenzy.

Ira Eckstein is a futures trader at the New York Stock Exchange. " I've never seen that in my whole career. You know, crude oil, $70.85; these are all fresh, new highs. Very, very active."

And with gasoline prices approaching a nationwide average of $3.00 a gallon, U.S. Senator Charles Schumer says it's time for drastic action. "It’s putting a real crimp on people's lives, putting a real crimp on the economy. If there was ever a time to use the strategic Petroleum reserve, it is now."

The US government's strategic petroleum reserve has nearly 700 million barrels of crude oil stored in underground salt caverns -- enough to meet US demand for about one month in the event of a national emergency.

Many say that emergency has arrived, including U.S. President George W. Bush, who asked the Department of Energy to release strategic oil reserves to refineries. President Bush said Wednesday, "A lot of crude production has been shut down because of the storm; I've instructed [Energy] Secretary Samuel Bodman to work with refineries, people who need crude oil to alleviate any shortages through loans."

Prices for crude oil fell after the announcement but oil analysts say not for long. That's because energy companies say the problem is not supply but rather the nation's reduced refining capacity.

The Environmental Protection Agency is waiving some of its anti-pollution standards to make cheaper gas available. EPA Director Steve Johnson comments on the relaxed rules: "These waivers are necessary to ensure that fuel is available throughout the country to address public health issues and energy vehicle supply needs."

The effects of the latest storm of the Atlantic hurricane season are expected to linger well into the future. Hurricane Katrina has also shut down natural gas production resulting in a shortfall of more than 15 billion cubic feet of natural gas. Oil price analysts say if refineries don't resume production in the coming weeks, it could mean higher home fuel heating costs this winter.