by Calculated Risk on 9/22/2005 12:43:00 PM

Radar: Houston / Galveston and Lake Charles, LA


Map from: Weather Underground

The US already has a significant portion of oil and gas production shut-in due to Katrina. UPDATE: Another report on Rita/Katrina Production Shut-In

Today’s shut-in oil production is 1,379,000 BOPD. This shut-in oil production is equivalent to 91.93% of the daily oil production in the GOM, which is currently approximately 1.5 million BOPD.

Today’s shut-in gas production is 6.594 BCFPD. This shut-in gas production is equivalent to 65.95% of the daily gas production in the GOM, which is currently approximately 10 BCFPD.

Click on graph for larger image.

The graph from the EIA's Daily Report adds Rita to the comparison of the recovery from Katrina to Ivan last year.

Here is an interactive map showing the oil rigs in Rita's path.

My thoughts are with the residents of the Gulf Coast. Best to all.

by Calculated Risk on 9/21/2005 01:21:00 PM

The FED Flow of Funds report was released today. It shows household mortgage debt increased $231.1 Billion in the 2nd quarter. The last 6 quarters (billions increase in household mortgages):

q1 2004: $198.8
q2 2004: $201.9
q3 2004: $283.9
q4 2004: $208.8
q1 2005: $178.7
q2 2005: $231.1

More to come.

by Calculated Risk on 9/21/2005 01:04:00 AM

NHC at 2AM EST announces that Rita is officially the FIFTH MAJOR hurricane of the season. Meanwhile the NHC is now forecasting that Rita might be Category 4 at landfall and that "strengthening into a category 5 hurricane is a distinct possibility."

My thoughts are with the residents of south Texas.

The Austin Statesman reports: Oil industry wary of Rita

The U.S. energy industry, already staggered by Hurricane Katrina, is bracing for another punch this weekend as Hurricane Rita heads for oil- and gas-producing areas along the Texas and Louisiana coasts.

A second hit could raise the chances for a recession, some analysts fear.
...
The Gulf of Mexico is home to about a quarter of the country's oil and natural gas production, with Houston hosting the key refining center. Hurricane Rita could hurt in two ways.

First, it could dramatically slow the recovery of production and refining operations devastated three weeks ago by Katrina in the New Orleans area. Second, it could shut down yet more refineries, pipelines and offshore platforms around Houston.

"You got a right cross with Katrina and now a left hook with Rita," said Agbeli Ameko, a partner with First Enercast Financial Inc., a Denver-based energy forecasting firm. "That's worse than getting hit twice in the same spot."
...
The 19 refineries operating along the Texas and western Louisiana coasts can process nearly 4.5 million barrels of oil a day, representing more than a quarter of all domestic capacity.

Analysts are hopeful that Rita's impact will be shorter lived than Katrina's because the Texas refineries are on higher ground than those in the New Orleans area.

On a more positive note: Houston-area refineries say they're prepared

I think the real one-two punch to the economy is energy prices and housing.

by Calculated Risk on 9/20/2005 04:20:00 PM

Dow Jones provides this list of refineries potentially in Rita's Path:

		CRUDE OIL
		THROUGHPUT
COMPANY	LOCATION	CAPACITY (B/D)
HOUSTON AREA		2,292,000 (Total)
ExxonMobil	Baytown, Tex.	557,000
BP	Texas City	437,000
Deer Park	Deer Park, Tex.	340,000
Lyondell Citgo	Houston	270,000
ConocoPhillps	Old Ocean, Tex.	216,000
Valero	Texas City	210,000
Astra	Pasadena, Tex.	100,000
Valero	Houston	90,000
Marathon	Texas City	72,000
CORPUS CHRISTI		586,000 (Total)
Flint Hills	Corpus Christi	288,000
Citgo	Corpus Christi	156,000
Valero	Corpus Christi	142,000
FAR EASTERN TEXAS		1,013,500 (Total)
ExxonMobil	Beaumont, Tex.	348,500
Valero	Port Arthur, Tex.	250,000
Motiva	Port Arthur, Tex.	235,000
Total	Port Arthur, Tex.	180,000
WESTERN LOUISIANA		593,300 (Total)
Citgo	Lake Charles, La.	324,300
ConocoPhillips	Westlake, La.	239,000
Calcasieu	Lake Charles, La.	30,000
TOTAL		4,484,800
US TOTAL		17,133,000

by Calculated Risk on 9/20/2005 03:26:00 PM

The media is picking up the recent No Bubble paper: Assessing High House Prices: Bubbles, Fundamentals, and Misperceptions

From the SFGate: Bubble won't burst, Study finds Bay Area housing prices in line with economic growth:

The recent, rapid price increases stem not from a speculative frenzy but from basic economic factors, including low interest rates, strong income growth and abnormally low prices in the mid-1990s, said researchers at Columbia University and the University of Pennsylvania's Wharton School.

"The bubble fears are over people paying money for housing today because they're expecting unreasonable (price increases)," said Todd Sinai, associate professor of real estate at the Wharton School. "Our calculation says that if people are expecting something reasonable, house prices today are justified -- and they are in San Francisco."

Over in the UK the BoE is arguing there is no bubble. From Reuters: Possible no housing market bubble-BoE's Nickell

The housing market, which rose 123 percent between early 1999 and the middle of last year, may well not have been in a bubble, Bank of England policymaker Stephen Nickell said on Tuesday.

Nickell said a fall in long-term real interest rates from about 4 percent in the mid-1990s to around 2 percent by 2000 was one factor that has likely driven a substantial rise in the equilibrium house price to earnings ratio since the mid-1990s.

"Of course, there is a good deal of uncertainty here, but it is clear that it may be legitimately argued that there has been no housing bubble whatever," Nickell told an academic audience.

Nickell also said that low inflation, the rise in two-salary households and increased levels of job security and rapid prospective earnings growth may also make it more sensible for households to borrow more now than they have in the past.

The paper is not worth reading, but I suppose I'll write a review (JS did a nice job in earlier comments).

by Calculated Risk on 9/20/2005 02:19:00 AM

Here are some excellent sites:
National Hurricane Center
U.S. Navy Storm Site
Weather Underground Note: See Jeff Master's blog.


Click on photo for larger image.

Rita nears the Keys. From the NHC Satellite Floater one.

Key West Radar and Miami Radar.

The Oil Drum: They are discussing the possible impact on oil and gas production.

I'm sure there are many more excellent sites. For most hurricanes the fear is greater than the actual damage. Hopefully that will be true with Rita. Unfortunately Katrina lived up to the hype.

From an economic perspective, Rita is a huge concern since so much oil and gas production is already shut-in. Another serious disruption of the GOM facilities could cause a significant price spike for oil, natural gas, gasoline and heating oil this winter.

For tomorrow, the concern is about the Florida Keys.

by Calculated Risk on 9/19/2005 04:05:00 PM

The National Association of Homebuilders reports: Home Builder Optimism Edges Down Further In September

Home builder optimism in the market for new single-family homes remains in a positive zone this month, albeit with some further erosion from the cyclical high in June, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today.

"Many builders appear to be taking on a more cautious attitude because of uncertainties in the economy and this post-Katrina environment, particularly with regard to sales expectations in the near term," observed Dave Wilson, NAHB president and a custom home builder from Ketchum, Idaho.

The overall HMI declined two points in September to a score of 65, which is the lowest it has been since July of 2003 when it also hit 65. This was the third consecutive month of declines since June’s 72 reading.

"As expected, the housing market is beginning to show signs of cooling and builders are reacting to that," agreed NAHB Chief Economist David Seiders. "While the HMI survey was taken immediately following Hurricane Katrina in early September, a combination of factors are likely in play, and Katrina impacts are only one part of the equation. In fact, the current HMI does not include responses from Katrina-hit areas, which typically account for about 2 percent of survey responses."

Weird. NAHB President Wilson blames it on Katrina and then NAHB economist Seiders admits Katrina is not a factor - yet.

Here are the components. UPDATE: Note that "Traffic of Prospective Buyers" has gone negative.

by Calculated Risk on 9/19/2005 03:13:00 AM

There have been some interesting housing articles over the last few days. This one I liked the title: Hurricane Watch for Real Estate

"The next hurricane bearing down on the United States isn't headed for one of our coasts — it's aimed for a direct hit on our economy.

Coming after Ophelia in the alphabet, its name begins with an R, as in "real estate bubble." And it's going to leave a path of destruction, starting with plummeting real estate values and hemorrhaging bank balance sheets. Banks have been stuffing those balance sheets with mortgage assets: in 1980, mortgage-related assets were 20 percent of total bank credits; now, in 2005, they are 61 percent of that total."

And there have been several articles discussing the surge in inventories, like this one: Inventory surge signals housing cool-down. The Housing Bubble has recently reviewed several of these articles.

And this article was interesting: Report: Mortgage brokers, appraisers fueling foreclosure increases. Blaming the mortgage brokers seems incorrect. Using the drug analogy (thanks to Tanta) if there were no junkies, there would be no crack dealers. But what might be most interesting is this is happening in a non-bubble state - wait until the bubble states slow - all the poor quality loans will be exposed:

"Aggressive mortgage brokers and appraisers are contributing to the rising foreclosure rate in Ohio, where mortgages fail more than any other state,"

And on a similar theme, this was an excellent article in the LA Times: Cheap Loans Are Under Fire. And then there is James Cramer complaining that housing is slowing (after touting the sector recently): Hope the Fed Sees Housing's Cooled

Stuff's not moving. Especially second-home stuff. It's like the spigot just shut off. And prices are now coming down, maybe dramatically.

There, that's my take on what's happening right now in the housing market, a market that has suddenly gone from great to just plain awful, particularly on the high end.

But take it from someone who has money on the line: The great home bubble ain't a bubble, it's a market, and the market's soft. And in all markets where there's softness, there is excess inventory, which means, alas, lower prices.

And finally, arguing for no housing bubble (via Dr. Thoma): Housing Bubble Trouble? Not if There’s No Bubble

"For the past several years, Chicken Littles have squawked that the sky -- or the ceiling -- is about to fall on the housing market... Yet basic economic logic suggests that this apparent ... bubble is anything but. Even in the highest-price cities, housing is, at most, slightly more expensive than average."

Like Professor Thoma, I'd like to read the actual paper, but in the mean time please call me Chicken Little!

by Calculated Risk on 9/19/2005 12:49:00 AM

This week's post is up on Angry Bear: The Debtor Society. Also, the FOMC will meet on Tuesday. Check out Dr. Duy's Fed Watch: What Will Be the Fed's Message? and Professor Polley's Picking up the (measured) pace? Of course the media is reporting: Katrina May Persuade Fed to End Rate Hikes

I hope everyone stays safe in the Florida Keys and the Gulf Coast later this week. Best Regards to all.

by Calculated Risk on 9/19/2005 12:15:00 AM

Once again a possible hurricane is threatening the Gulf of Mexico (GOM). As I wrote last week on Angry Bear, the oil and gas situation seems stable but precarious.


Click on map for larger image.

Long range hurricane forecasts are subject to large amounts of error, but right now Tropical Storm Rita is projected to hit the Texas coast late next week as a hurricane. This could threaten oil and gas producing interests in the GOM and refineries along the Texas coast.

Here is a map of oil and gas interests in the GOM. Also, a Simmons report on the impact of GOM hurricanes (a couple of years old).


When I initially wrote about the possible economic impact of Katrina (several days before the storm hit the gulf coast), I was concerned about the low inventories of gasoline.

Now we have the added worry that a significant portion of oil and gas production is already shut-in due to Katrina. The graph from the EIA's Daily Report compares the recovery from Katrina as compared to Ivan last year.

Hopefully the storm will dissipate, although on its current track it is expected to cross very warm waters and encounter little shear. Rita bears watching as the week progresses.