LONDON, 30 August 2005 — Oil prices surged to a record above $70 a barrel yesterday as one of the biggest hurricanes in US history disrupted oil and gas production in the Gulf of Mexico. The region is home to a quarter of total US oil and gas production.
US crude oil futures jumped nearly $5 a barrel in electronic trade to touch a peak of $70.80 a barrel, the highest front-month price since the New York Mercantile Exchange (NYMEX) began trading the contracts in 1983.
Oil traded up $2.37 a barrel at $68.55 at 1447 GMT, trimming early gains after Hurricane Katrina slammed into Louisiana and Mississippi.
Katrina threatens lasting damage to vital US oil and refining assets, further straining an industry that has struggled to keep up with two years of rapidly rising oil demand.
“The impact on the market is fairly traumatic,” said Frederic Lasserre of SG Commodities. Lasserre said the market would assume a similar impact to that of Hurricane Ivan last September, which wiped out a total of around 45 million barrels of US oil output over six months.
The impact of lost production and imports on US crude stocks would likely support prices for some time, he said. “The price floor for the market will be higher than it was before Katrina,” Lasserre said.
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.
Oil product prices also shot higher to records as the storm forced eight refineries in southeast Louisiana to shut. The refineries account for about 9 percent of total US refining capacity. Gasoline soared as high as $2.1575 a gallon and heating oil rocketed past $2.00 a gallon for the first time. Natural gas prices were also up 20 percent.
Dealers fear the storm will tighten fuel supplies, which are much lower than relatively robust crude stockpiles and more difficult to replace as most refiners have been pumping flat out to meet rising demand.
“The only way we can avoid yet higher prices is if President Bush releases supply from the Strategic Petroleum Reserve,” said David Thurtell, strategist at Australia’s Commonwealth Bank.
In 2004, the president authorized loans from the reserve to help refiners make up for missing supplies when Hurricane Ivan struck.
OPEC’s President Sheikh Ahmad Al-Fahd Al-Sabah said he would propose the group raise both real oil output and its output target by 500,000 bpd at its meeting in September in an attempt to lower prices.
He said most of the extra oil would come from Saudi Arabia, the only OPEC member with sizeable spare capacity. But the Saudi spare capacity is mostly heavier crude that refiners find difficult and costly to process into transport fuels.
