US Gulf Oil Systems in Meltdown After Katrina

OIL platforms, refineries and pipelines along the Gulf Coast remained shut down yesterday, driving energy prices sharply higher, with oil jumping by more than dollars 3 to again climb above dollars 70 a barrel.

The buying frenzy reflected fear about the full extent of the damage Hurricane Katrina inflicted on key energy infrastructure.

“This is an extremely serious situation,” said Tom Kloza, director of the Oil Price Information Service.

US gasoline prices hit dollars 2.85 a gallon in the Gulf states and in the Midwest, prices were as high as dollars 2.65 a gallon. Analysts said pump prices will exceed dollars 3 a gallon by the end of the week.

Light sweet crude for October delivery rose dollars 3.45 to dollars 70.65 a barrel by midday on the New York Mercantile Exchange.

Natural gas for October delivery traded at dollars 11.75 per 1,000 cubic feet, an increase of 61.1 cents.

Analysts believe that the operations of natural gas processors and chemical manufacturers, who depend heavily on the natural gas as a feedstock, could be disrupted for days, if not weeks.

The US Minerals Management Service said that 92 per cent of the region’s oil output was out of service, with more than three million barrels of production lost since Friday, and 83 per cent of natural gas output shut down, resulting in a loss of 15.5 billion cubic feet of lost production.

The Gulf of Mexico normally produces two million barrels of crude oil a day and about ten billion cubic feet a day of natural gas.

“It could be weeks before we know the full extent [of damage], but given how easily dollars 70 was reached, it’s not out of the question that dollars 80 could be the next barrier if there’s long- term damage,” said Gerard Burg, minerals and energy economist at National Australia Bank.

The last time oil prices, adjusted for inflation, averaged dollars 80 a barrel was 1980, after the Iranian revolution.