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Economic Effects Caused by Hurricane Ike

Essay by   •  August 17, 2011  •  Case Study  •  785 Words (4 Pages)  •  1,961 Views

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How did the flooding affect commodity markets? Describe, in detail, what happened to energy prices. Look at the markets for the following commodities: crude oil, unleaded gas, and natural gas. Does Ike constitute a supply or demand shock? Explain yourself clearly.

The Hurricane Ike in 2008 was the third costliest hurricane in the US history. It has caused severe devastation to Louisiana and Texas coastal lines. Ike's effects included not only deaths, widespread damages, but also the availability of gas and oil. Hurricane Ike has constituted a supply shock in crude oil-based commodities. Because according to the path of Hurricane Ike, it was pushing towards the mass of petroleum refineries in Texas, they had to close all of the refineries in the Gulf of Mexico. As a result, the crude oil production along the Gulf of Mexico has dramatically declined. Approximately 1.3 million barrels of crude oil production per day has been shut, which accounts for about one fourth of the total crude oil production in the United States.

Compare and contrast Hurricane Ike with the flooding caused by Hurricanes Katrina and Rita in Louisiana during 2005. Which markets were affected during the hurricanes? What were the effects?

In 2005, Hurricane Katrina, as a Category 3 hurricane, was an even stronger tropical storm than Hurricane Ike. With the previous Hurricane experiences, energy traders watch for storms that could enter the coastline and threaten the oil and gasoline production, as well as refining facilities along the Gulf of Mexico. At the same time, commodities traders watch storms that could hit agriculture crops like citrus and cotton along the coast. Orange juice futures surged as Ike seemed on track to hit the southern Florida citrus belt. Comparing to Ike's effects with Katrina's, the latter is much more long-lasting and also more world-wide. By the end of August, 2005, about 80% of New Orleans was flooded. The oil refining in this area was stopped, therefore increased the oil price. The severe storm interrupted oil production, importation, and refining in Louisiana, thus having a major effect on fuel prices. Katrina also caused short in supply of some export agricultural goods like grain, corn, soybeans, and cotton because the transportation was interrupted due to the storm. Gambling and entertainment businesses were affected by Katrina, too because a lot of the major casinos in Louisiana and Mississippi were forced to evacuate and shut down. Furthermore, the housing market is affected. The housing crisis in is still affecting New Orleans 2-1/2 years after the city was struck by Hurricane Katrina. The main economic impact caused by Hurricane Rita was the oil supply and production, since Rita traveled through a dense area of offshore pipelines and oil platforms, and on land to an area with large refineries.

Have the policies enacted for Katrina and Rita been successful?

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