Crude Oil Prices Climb Toward $68 a Barrel

SINGAPORE – Crude oil prices climbed toward $68 a barrel Thursday as Hurricane Rita closed in on Texas, raising fears it would hit key production facilities along the U.S. Gulf Coast that were largely untouched by Hurricane Katrina’s onslaught three weeks ago.

The Category 5 hurricane with 165-mph winds was expected to strike Texas, the heart of U.S. oil production, on Saturday. More than 1.3 million people in Texas and Louisiana – including hundreds of oil workers – were ordered to evacuate.

“No question, prices are driven by Hurricane Rita,” said Energyintel analyst Sam Dale in Singapore. “The fuse is that it will force refinery closures, and if these facilities close it is going to reduce inventories.”

In Singapore, November front-month contracts on the New York Mercantile Exchange rose as much as 98 cents to $67.78 a barrel in electronic trade, before easing slightly to $67.61. In New York trading, it rose 60 cents to close at $66.80 a barrel Wednesday.

Oil prices are around 40 percent higher than a year ago. Nymex crude reached an all-time high of $70.85 a barrel Aug. 30 when Katrina made landfall in Louisiana, damaging and shutting down numerous oil refineries and other facilities.

Now Texas, which produces more than 25 percent of total U.S. crude, is bracing for similar havoc from Rita.

Eighteen of its 26 refineries, with a combined distillation capacity of 4 million barrels daily, are located near the Gulf of Mexico. Dow Jones Newswires said at least eight refineries were expected to close shortly.

“Some of those refineries in Texas, they’re at sea level. It’s a table top, it floods every easily,” said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York.

The U.S. Minerals Management Service said Wednesday that 469 platforms in the Gulf are unstaffed, up sharply from 136 on Tuesday. More than 73 percent of oil production in the region is blocked, up from 58 percent Tuesday.

In a sign of growing frustration over surging oil prices, the head of the U.S. Energy Information Administration, Guy Caruso, slammed the Organization of Petroleum Exporting Countries for constraining production to keep prices high.

“Without question,” Caruso said Wednesday when asked during a Senate Commerce Committee hearing whether OPEC has contributed to soaring oil prices.

“OPEC policy has been to constrain production and collude… Under the FTC definition of collusion and price-fixing, yes,” he said. The EIA is the statistical and analytical wing of the U.S. Department of Energy.

OPEC, responsible for a third of global output, promised earlier this week to make available an additional 2 million barrels daily, but its members have also said the problem was not with the amount of crude available but with refining capacity.

Oil prices didn’t get much relief from the Department of Energy’s weekly report Wednesday that U.S. gasoline inventories rose 3.4 million barrels to 195.4 million barrels in the week ended Sept. 16.

Inventories of distillate fuels, which include heating oil, rose 800,000 barrels to 134.1 million while crude inventories dropped 300,000 barrels to 308.1 million, but are nearly 12 percent above year-ago levels.

In Nigeria, followers of a detained militia leader demonstrated in the oil city of Port Harcourt, vowing to destroy oil facilities and attack the army if he was not released.

“These kinds of political risk factors are very, very important to driving oil prices higher,” said Energyintel’s Dale. “Nigeria is a big exporter to the U.S., and potential disruption is an obvious excuse for traders to bid higher.”

In other Nymex prices, natural gas continued its march upward, rising 59 cents to $13.19 per 1,000 cubic feet – making the key winter heating fuel commodity more than 50 percent higher from the same period in 2004. Gasoline rose 5 cents to $2.1050 a gallon, while heating oil moved 3 cents higher to $2.0690 a gallon.