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
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)

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

Saffir-Simpson scale.

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

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

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,"

Thurtell said

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