US petrol production now one-tenth of normal

ACCORDING to officials production of petrol in the US has fallen to a tenth of its usual rate following the devastation caused by Hurricane Katrina, prompting the price of crude oil to soar on the international market as the US government prepares to dip into its strategic reserves (normally only used in times of war) to ease the crisis.

Crude oil prices have hit levels unseen in real terms since 1980 - the year of the Iran-Iraq war and a year after the Iranian revolution choked off supply lines.

Prices fell by $1.67 a barrel to $67.80 yesterday on news Europe was riding to the rescue. Gasoline also eased. The price of oil shot past the $70 level earlier this week. But European oil will take at least 10 days to reach US shores and tanker space is in short supply, with many commercial ships under charter and crossing the Atlantic.

Katrina is estimated to have caused €100 billion in damage to the US economy. Analysts Risk Management Solutions said at least half of this will result from flooding, which has left New Orleans essentially uninhabitable. The rest will come from wind and infrastructure damage, storm surges and indirect economic impacts.

The economic impact of Katrina was being felt worldwide yesterday as insurance companies assessed their exposure to the damage.

Hanvoer Re said: “Hurricane Katrina is presumably set to become the most expensive ever natural disaster suffered by insurers in industry history.” Merrill Lynch’s European insurance analyst Brian Shea estimates that reinsurers Munich Re and Swiss Re are likely to have the biggest exposure to Katrina, while insurers across British and Germany will also face losses.

Additional reporting by Reuters.

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