As Oil Spill Spreads to Gulf Coast, Will Gas Prices Go Up?

(MoneyWatch)  The massive Gulf of Mexico oil spill hit the Louisiana coast this morning, ten days after the BP-operated Deepwater Horizon oil rig exploded and sunk, killing 11 workers and setting 5,000 barrels of oil a day spewing into the surrounding water.

It is a continuing catastrophe; the slick is now the size of Maryland and expected to cause serious damage not only to Gulf Coast states but potentially to oil prices and President Obama's plans to widen drilling and pass climate legislation. Officials said it could take three months to cap the spill.

"This thing is serious. It is a disaster and a tragedy and it will have far-reaching ramifications on BP, on the industry, the Gulf states, and on politics," Fadel Gheit, an energy industry analyst with Oppenheimer & Co., told CBS MoneyWatch in an interview. "The 'drill, baby, drill' people are going to take a second look at opening us offshore to the oil industry drilling." And it could give a boost to the natural gas industry, Gheit suggested.

The Obama plan to expand drilling into new areas of the Atlantic, off Alaska, and in the Gulf of Mexico has been shelved, at least temporarily. White House advisor David Axelrod said this morning that the administration would not authorize any new drilling until the cause of this disaster was determined. Already-scheduled drilling will continue as planned. But the Obama plan to widen drilling is contained in the far-reaching climate change legislation now stalled in the Senate; this is not going to help, as Hill Democrats have already moved to pass legislation to stop new drilling.

The price of oil rose to $85.82 a barrel today, up from the $82-per-barrel level it was at before the explosion occurred. But Gheit doesn't expect the accident to greatly affect oil prices, since they are already jacked up to levels far beyond where supply and demand should put them. "I don't see supply and demand fundamentals putting oil prices over $60 a barrel" he said. "[Prices] are inflated and manipulated by the trading of derivatives."

Shares of BP and other companies involved in oil drilling, like Halliburton and Cameron International (which made the safety equipment which arguably should have prevented this disaster) have sunk, but they may have more to give. BP confirmed that it is self-insured for the accident, and is currently spending $6 million a day to try to contain it. That doesn't count money it will spend replacing the rig and fending off (or settling) myriad lawsuits.

Finally, the Gulf Coast states, already beaten down from the effects of hurricanes, floods, and tornadoes, are apprehensively waiting for the Maryland-sized oil slick to slime their coastline and smother their spring shrimping, fishing, and tourism activities. Shrimpers from Louisiana and Alabama have already filed suit against BP, and the grease is heading towards the mouth of the Mississippi. That's tragic and really sad, even for an area that invented the delta blues.

Photo by Recovering on Flickr.
More on MoneyWatch

• Gas Prices on the Rise
• Go Green, Save Money
• What You'll Be Driving in 2016