Oil nears $ 71Oil hits record near $71
Crude soars anew on fears that refinery outages could crimp supplies in aftermath of Katrina.
August 30, 2005: 11:54 AM EDT
https://money.cnn.com/2005/08/30/markets/oil.reut/index.htm?cnn=yes
Oil hits record near $71
LONDON (Reuters) - Oil climbed to a new record high near $71 a barrel Tuesday as oil firms assessed damage wrought by Hurricane Katrina's rampage through the Gulf of Mexico, where most oil and gas output was at a standstill and refineries were closed.
Light sweet crude for October delivery soared as high as $70.85 in New York Tuesday, a day after Katrina ripped through the Gulf, which pumps a quarter of U.S. oil and gas, and slammed into Mississippi, killing at least 50 people. (Full story.)
The October oil contract had later backed off a bit and was up $3.10 at $70.30 a barrel on the New York Mercantile Exchange as the first news of rig damage became known. The contract had touched $70.80 in electronic trading Monday -- then the highest trading price on record.
London Brent crude, resuming trade after Monday's holiday, jumped $3.37 to $68.24 a barrel.
Natural gas was also sharply higher, and wholesale gasoline shot up to almost $3 on the Gulf coast.
OPEC's biggest crude oil producer Saudi Arabia moved swiftly to pledge an extra 1.5 million barrels per day (bpd) of oil to the market if needed and the United States announced it would dip into its strategic reserves if necessary.
"Seventy dollars a barrel is a level that has invoked a political reaction," said Mark Keenan, a fund manager at MPC Commodities Fund.
But the market paid little heed.
Gasoline and heating oil futures led the charge as dealers feared refinery outages or delays in crude shipments would turn off fuel taps.
Gasoline hit a record $2.25 a gallon, dragging the European market in its wake. The oil industry can ill afford a lasting disruption in supplies to the world's biggest consumer.
"Fasten your seatbelt - peak hurricane season isn't until mid-September through mid-October, and we've had two hurricanes hit the Gulf coast already," said Deborah White, senior energy analyst at SG Commodities in Paris.
"The primary uncertainty right now is the extent of damage and headlines there will go straight into prices."
Gulf of Mexico output at standstill
More than 90 percent of the Gulf of Mexico's oil output and over 80 percent of natural gas production was shut as a precaution, the U.S. minerals management service said.
That closed down 1.4 million bpd of crude, roughly seven percent of U.S. domestic demand and about the same amount as the estimated spare capacity held by OPEC.
"It could be weeks before we know the full extent (of damage), but given how easily $70 was reached, it's not out of the question that $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 $80 a barrel was 1980, after the Iranian revolution.
Royal Dutch Shell said an aerial inspection of its Mars platform indicated some damage to its upper deck. Two of the oil giant's drilling rigs were adrift.
Ensco International Inc said the towline parted on its deepwater rig, leaving it adrift.
"Drifting rigs are an ominous sign for an already panicky market since moorings and anchors can potentially be dragged by drifting facilities and do damage to subsea pipes," said analysts at J.P. Morgan.
MPC's Keenan agreed crude and gasoline prices could well move higher if there was serious damage to the key Louisiana Offshore Oil Port (LOOP) and oil and gas installations. Otherwise he predicted a sharp fall in the price of U.S. natural gas, which has far outstripped crude oil gains.
"Something is going to have to give," Keenan said.
The storm forced eight refineries in southeast Louisiana to shut, and two others to reduce operations, disabling more than nine percent of U.S. refining capacity.
The United States maintains a small government heating oil stockpile in the northeast but otherwise has limited ability to quickly meet any sudden fuel shortfalls.
"The U.S. refinery system has been showing some signs of severe tightness over the past months," said Kevin Norrish of Barclays Capital, predicting gasoline supplies would bear the brunt of any disruption.
OPEC helpless
Top oil exporter Saudi Arabia said it was ready to boost its oil output to 11 million bpd, but the market paid little heed. Earlier OPEC President Sheikh Ahmad al-Fahd al-Sabah said he would propose the group raise production by 500,000 bpd at its next meeting in September.
OPEC member Nigeria said it would prefer to see an increase of one million barrels per day, while acting Secretary General Adnan Shihab-Eldin repeated the cartel's line that economic fundamentals could not explain current red hot prices.
"Once fundamentals take center stage we will see the market settle," he said. "Forty dollars a barrel is a floor, but I could see around $50-55."
That view was echoed by Nigerian President Olusegun Obasanjo. "The price of oil in the world today is an aberration. I want to believe that it is not sustainable," he said.
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