August 29, 2005
Oil leaps above $70 as Katrina rips through Gulf
LONDON (Reuters) - Oil prices surged to a record
above $70 a barrel on Monday as one of the biggest
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)
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
Despite easing, Katrina -- the 11th named storm of what is
expected to be an unusually severe season -- threatens
damage to vital U.S. oil and refining assets, further
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,"
David Thurtell, strategist at the Commonwealth Bank of
Oil product and natural gas prices also shot higher to
records, with gasoline soaring as high as $2.1575 a gallon
heating oil rocketing past $2.00 a gallon for the first
Natural gas prices were up 20 percent.
More than 40 percent of all U.S. crude oil production in
Gulf of Mexico was reported closed down due to the
with the total expected to rise significantly as more
report affected production to the U.S. government on
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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,"
Chevron Corp. spokesman Matt Carmichael.
Last year Hurricane Ivan tore up platforms and pipelines
along a very similar path through the Gulf, disrupting
The Gulf of Mexico normally pumps about 1.5 million barrels
per day (bpd) of U.S. crude, a quarter of domestic output
equivalent to nearly 2 percent of global oil production,
to the estimated spare capacity left within OPEC.
"The only way we can avoid yet higher prices is if
Bush releases supply from the Strategic Petroleum Reserve,"
The administration has said in the past it would release
from the 700-million-barrel SPR only during a serious
disruption, but has never given further details.
"The Energy Department (DOE) is monitoring the situation,"
an administration official said in Washington. The DOE
out 5.4 million barrels last year after Ivan, which shut in
total 45 million barrels before full output was restored.
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
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
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
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
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