According to a report, hurricane Ida is sure to take a toll on the energy, chemical, and shipping industries that have major hubs along the Gulf Coast, but the impact on the overall U.S. economy should be modest so long as damage estimates don’t rise sharply and refinery shutdowns are not prolonged, economists suggested.
Even though the storm was raging, oil prices didn’t show a sharp rise in response to Ida. The New York Mercantile Exchange prices were flat at $68.69 per bar, a mere 0.1% drop.
Chief economist at Moody’s Analytics Mark Zandi said Sunday that the disruptions caused in Ida would likely cause him to lower his estimate for U.S. annual economic growth in this quarter of July-September by just a few tenths. He said that the economic loss could be reversed in quarter four of the year due to the reconstruction from the hurricane’s destruction that will likely ensue.
Citi Investment Research analysts believe that the drag on GDP growth will be countered by reconstruction. They warned, however, that inflationary effects could be more persistent because of the demand for construction materials, autos, and workers.
Zandi stated that he expected the nation’s gross national product, which is the total output of goods or services, to grow at 6.5% annually in the second half of this year. This rate matches the growth of the first six months. Zandi said that Ida’s impact is not the only concern. He also noted that the contagious Delta variant of the coronavirus can have a negative effect on the economy. It could cause Americans to spend less on travel, restaurants, and other types of spending, the report added.
Zandi stated that energy prices are the key channel through which Ida can impact the wider economy. “We’ll have to see what damage has been done to the Gulf’s production and how long it will remain offline.”
Zandi stated that a brief rise in gasoline prices could be caused by production shutdowns.
He said that the worst-case scenario was where Ida could add 10 to 20 cents per gallon to the cost of a gallon through September. He suggested that pump prices could rise for only a few more weeks.
The region saw the closure of plastics and chemical companies. Citi analysts however said that the US chemical industry is better equipped to handle summer storms than winter freezes, provided that there isn’t sustained flooding that could cause damage to electrical stations.
Brian Bethune, an economist from Boston College, warned that gas price rises could be more severe depending upon how long production shutdowns last and whether there are other sources of supply. After the hacking of the Colonial Pipeline in January, prices rose sharply in some states as gas stations ran out of fuel.
S&P Global Platts stated Sunday that 95% of the Gulf Coast’s oil and gas production was cut off by Ida. Platts also stated that almost 4.4 million barrels per hour of the operating refinery capacity in Ida’s path, primarily in Louisiana had been shut down before the hurricane struck Sunday afternoon, the report said.
According to Platts analysts, “Many plants are now protected against hurricanes but disruptions in operations can still be caused by flooding, power outages, and personnel dislocations.”
Ida arrived on the 16th anniversary of Hurricane Katrina’s destruction. Although Ida experienced higher winds, Ida will have a smaller financial impact because of a lower storm surge, and New Orleans‘ better levee system that is more able to withstand hurricane surges. Boenning & Scattergood analysts also pointed out that Ida’s storm-field is smaller than Katrina. This could help reduce the potential for catastrophic damage. Analysts estimate that the industry’s losses will be around $10 billion. This compares to the more than $90 billion in insured losses resulting from Katrina.
Ida, the fifth-strongest storm to hit the mainland, made landfall Sunday. According to PowerOutage.US which monitors outages across the country, more than one million people in Louisiana and Mississippi were without electricity Monday.