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Last Updated: Nov 2nd, 2009 - 17:32:57 |
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) began 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 five-step Saffir-Simpson scale.
Despite easing, Katrina -- the 11th named storm of what is expected to be an unusually severe season -- threatens lasting damage to vital U.S. oil and refining assets, further straining 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," said David Thurtell, strategist at the Commonwealth Bank of Australia.
Oil product and natural gas prices also shot higher to records, with gasoline soaring as high as $2.1575 a gallon and heating oil rocketing past $2.00 a gallon for the first time. Natural gas prices were up 20 percent.
More than 40 percent of all U.S. crude oil production in the Gulf of Mexico was reported closed down due to the hurricane, with the total expected to rise significantly as more operators report affected production to the U.S. government on Monday. (Please click on for more details.)
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," said Chevron Corp. spokesman Matt Carmichael.
Last year Hurricane Ivan tore up platforms and pipelines along a very similar path through the Gulf, disrupting output 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 and equivalent to nearly 2 percent of global oil production, similar to the estimated spare capacity left within OPEC.
"The only way we can avoid yet higher prices is if U.S. President George W. Bush releases supply from the Strategic Petroleum Reserve," Thurtell said
The administration has said in the past it would release oil from the 700-million-barrel SPR only during a serious supply disruption, but has never given further details.
"The Energy Department (DOE) is monitoring the situation," an administration official said in Washington. The DOE loaned out 5.4 million barrels last year after Ivan, which shut in a total 45 million barrels before full output was restored.
REFINERS HIT
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 replace 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 operations 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 shut 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 Meraux 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 nation's total.
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