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Oil leaps above $70 as Katrina rips through Gulf

August 29, 2005

LONDON (Reuters) – Oil prices surged to a record

above $70 a barrel on Monday as one of the biggest
hurricanes in

U.S. history churned through the Gulf of Mexico, home to a

quarter of U.S. oil and gas production.

U.S. crude oil futures jumped nearly $5 a barrel in opening

trade to touch a peak of $70.80 a barrel, the highest front

month price since the New York Mercantile Exchange (NYMEX)
began

trading contracts in 1983.

It later traded up $3.07 a barrel, or 4.6 percent, at

$69.20, trimming early gains after Hurricane Katrina was

downgraded to a still-powerful Category 4 storm on the
five-step

Saffir-Simpson scale.

Despite easing, Katrina — the 11th named storm of what is

expected to be an unusually severe season — threatens
lasting

damage to vital U.S. oil and refining assets, further
straining

an industry that has struggled to keep up with two years of

strongly rising oil demand.

“We can expect two months of lost production, and coming in

the peak-demand period this is the worst possible news,”
said

David Thurtell, strategist at the Commonwealth Bank of

Australia.

Oil product and natural gas prices also shot higher to

records, with gasoline soaring as high as $2.1575 a gallon
and

heating oil rocketing past $2.00 a gallon for the first
time.

Natural gas prices were up 20 percent.

More than 40 percent of all U.S. crude oil production in
the

Gulf of Mexico was reported closed down due to the
hurricane,

with the total expected to rise significantly as more
operators

report affected production to the U.S. government on
Monday.

(Please click on for more details.)

The full extent of the damage and how long it will affect

supplies will only be known after the storm clears.

“We’re just going to have to wait and see what’s left,”
said

Chevron Corp. spokesman Matt Carmichael.

Last year Hurricane Ivan tore up platforms and pipelines

along a very similar path through the Gulf, disrupting
output

for months.

The Gulf of Mexico normally pumps about 1.5 million barrels

per day (bpd) of U.S. crude, a quarter of domestic output
and

equivalent to nearly 2 percent of global oil production,
similar

to the estimated spare capacity left within OPEC.

“The only way we can avoid yet higher prices is if
President

Bush releases supply from the Strategic Petroleum Reserve,”

Thurtell said

The administration has said in the past it would release
oil

from the 700-million-barrel SPR only during a serious
supply

disruption, but has never given further details.

“The Energy Department (DOE) is monitoring the situation,”

an administration official said in Washington. The DOE
loaned

out 5.4 million barrels last year after Ivan, which shut in
a

total 45 million barrels before full output was restored.

REFINERS HIT

Apart from the impact on crude production, dealers fear the

storm will tighten fuel supplies, which are much lower than

relatively robust crude stockpiles and more difficult to
replace

given most refiners have been pumping flat out.

“Last year we had 15 million barrels more gasoline than

now,” said Jim Ritterbusch, president of Ritterbusch and

Associates in Illinois.

Gulf Coast refiners produce about 45 percent of U.S.

gasoline, he said, and they might struggle to restore
operations

amid power cuts and flooding, even if they escape damage.

Seven southeast Louisiana refineries with a combined daily

refining capacity of 1.449 million barrels of crude oil had
shut

down ahead of Katrina, equal to 8.5 percent of total U.S.

refining capacity, operators said.

Two of those refineries near New Orleans — the 190,000-bpd

Chalmette Refining LLC and Murphy Oil Corp.’s 120,000-bpd
Meraux

plant — appeared to be directly in the path of the storm.

“We’re all wondering, ‘What am I going to have to come home

to?”‘ said Barb Hestermann, spokeswoman for the Louisiana

Offshore Oil Port (LOOP), which shut down at the weekend,

halting 1 million-bpd of crude imports, a tenth of the
nation’s

total.




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