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Oil Surges Past $70 a Barrel

Posted on: Monday, 29 August 2005, 03:00 CDT

SINGAPORE -- Crude oil futures surged past $70 a barrel for the first time Monday as Hurricane Katrina barreled toward the heart of U.S. oil and refinery operations in the Gulf of Mexico, shutting down an estimated 1 million barrels of refining capacity.

Light, sweet crude for October delivery on the New York Mercantile Exchange jumped as much as $4.67 a barrel in electronic after-hours trading in Singapore to hit a high of $70.80 a barrel before slipping to $70.03. That's up $3.90 from its close on Friday in New York.

Gasoline traded at $2.1448 a gallon, up 21 cents, while heating oil rose more than 17 cents to $2.0110 a gallon.

Hurricane Katrina looked set to hit an area crucial to the U.S. energy infrastructure - offshore oil and gas production, import terminals, pipeline networks and numerous refining operations in the southern states of Louisiana and Mississippi.

The Category 5 storm advanced on New Orleans with 160-mph winds and a threat of a 28-foot storm surge, forcing a mandatory evacuation of the below-sea-level city. The last Category 5 storm in America was Hurricane Andrew in 1992, which killed 43 people and caused $31 billion in damage.

Katrina has already forced the shutdown of an estimated 1 million barrels of refining capacity and curbing offshore production, but analysts said the storm's potential damage to facilities was even more worrying.

"It's not only the suspension of production that's causing concern, it's the fact that we could see potential damage to the platforms, which would cause longer disruptions to production," said energy analyst Victor Shum of Texas-headquartered Purvin & Gertz in Singapore.

"It looks like the perfect storm to drive prices up," he said.

Katrina grew from a smallish storm threatening Florida into a menacing hurricane in a matter of days.

On Friday, the Nymex crude oil contract fell more than a dollar to $66.13 a barrel as many traders took profits on forecasts that Katrina would likely little affect U.S. refineries and production facilities in the Gulf of Mexico.

"But then the storm reloaded over the weekend, gained strength and set on a path toward the oil facilities," Shum said. "The people who sold on Friday are probably kicking themselves now."

Unlike last year's Hurricane Ivan, which only hit the edge of the oil and natural gas producing areas in the central Gulf of Mexico, Katrina is plowing right through the heart of that region, kicking up much bigger waves and much stronger winds in the process.

"If this thing knocks out significant quantities of refining capacity ... we're going to be in deep, dark trouble," said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York.

Oil companies evacuated workers and shut down more than 600,000 barrels of daily production in the Gulf. Refiners closed down more than 1 million barrels of refining output by Sunday, but that amount could be higher because not every producer reports data, said Peter Beutel, an oil analyst with Cameron Hanover.

ChevronTexaco Corp. evacuated all workers in the eastern and central Gulf of Mexico and nonessential workers in the western Gulf late Saturday, but company spokesman Matt Carmichael said Chevron will continue to produce 90 percent of its normal production by remote.

Royal Dutch-Shell Group, BP PLC and ExxonMobil Corp. also evacuated offshore workers by Saturday.

The Louisiana Offshore Oil Port, the largest oil import terminal in the United States, evacuated all workers and stopped unloading ships on Saturday.

Shell estimated 420,000 barrels of oil and 1.35 million cubic feet of gas per day will be shut in at its central and eastern Gulf facilities. ExxonMobil said it has ceased daily production of 3,000 barrels of oil and 50 million cubic feet of gas.

Analysts expected oil prices to maintain an upward bias as the market, already jittery due to tightness in the global supply cushion, monitors the impact of the storm.

"In coming days, buying momentum may be sustainable and pushing Nymex crude futures higher, depending on (the) hurricane's impact on oil, gas production in Gulf of Mexico, refineries in U.S.," said Ken Hasegawa of Tokyo-based brokerage Himawari CX.

The president of the Organization of Petroleum Exporting Countries said Sunday the oil cartel is concerned over surging prices. Sheik Ahmed Fahd Al Ahmed Al Sabah, who is also Kuwait's oil minister, said the cartel will look at ways to ease prices at a Sept. 19 meeting.

In other news, Asia's largest refiner by capacity China Petroleum & Chemical Corp., or Sinopec, said Monday its net profit for the first half of 2005 surged 17 percent on high oil prices and strong domestic demand for refined products on the back of the booming Chinese economy.

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Associated Press Writer Justin Bachman in New York contributed to this report.

Source: Associated Press/AP Online

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