US crude oil futures jumped nearly $5 a barrel in opening trade to touch a peak of $70.80 a barrel, surpassing last week’s $68 high to the highest front month price since the New York Mercantile Exchange (NYMEX) began trading contracts in 1983.
It later traded up $3.94 a barrel, or 6%, to $70.07, more than recouping losses on Friday, when mixed forecasts showed Hurricane Katrina might miss oil and gas infrastructure.
Oil product and natural gas prices also shot higher to records, with petrol soaring 12% to $2.15 a gallon and heating oil rocketing past $2 a gallon for the first time.
Natural gas prices were up 22%.
Prices leapt as Hurricane Katrina, the 11th named storm of what is expected to be an unusually severe season, threatened to do lasting damage to vital US oil and refining assets in the Gulf of Mexico, further straining an industry that has struggled to keep up with two years of strongly rising oil demand.
More than 40% of all US crude oil production in the Gulf of Mexico was reported shut down due to the hurricane, with the total expected to rise significantly as more operators report affected production to the US government on Monday.
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 spokesman Matt Carmichael.
Katrina, described by one official as a “perfect” hurricane, revved up to a maximum Category 5, far stronger than last year’s Hurricane Ivan, which 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 of US crude, a quarter of domestic output and equivalent to nearly 2% of global oil production, similar to the estimated spare capacity within Opec.
It is suggested Bush releases
“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.
“The only way we can avoid yet higher prices is if President [George] Bush releases supply from the Strategic Petroleum Reserve (SPR).”
The administration said in the past it would release oil from the 700-million-barrel SPR only during a serious supply disruption, but had never given further details.
“The Energy Department is monitoring the situation,” an administration official said in Washington.
It loaned out 5.4 million barrels last year after Ivan, which shut in a total 45 million barrels before full output was restored.
Struggle to restore
Apart from the impact on crude production, dealers fear the storm will tighten supplies of consumer fuels, which are much lower than relatively robust crude stockpiles. Petrol inventories are at the low end of their seasonal norm.
Gulf Coast refiners produce
“Last year we had 15 million barrels more gasoline than now,” said Jim Ritterbusch, president of Ritterbusch and Associates in Illinois. “Given the already low stock levels most of price impact will be at the front of the gasoline curve.”
Gulf Coast refiners produce about 45% of US petrol, he said, and they may 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 making landfall, an amount equal to 8.5% of total US 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.
Dealers are concerned about lasting damage as the Organisation of the Petroleum Exporting Countries (Opec) is already pumping near its full capacity, leaving it little room to make up for any prolonged outages.
Shaikh Ahmad al-Fahd al-Sabah:
Opec’s president said at the weekend soaring prices were of rising concern to the group, which controls half the world’s oil exports, but that they should start to ease as higher costs begin to curb demand.
“Opec will be exploring various options for the September meeting, which will hopefully contribute to moderate prices,” Opec President Shaikh Ahmad al-Fahd al-Sabah, also Kuwait’s oil minister, said in Kuwait City.
He did not elaborate on the nature of these options. Opec meets on 19 September to chart output policy.
Production elsewhere in the world was also under strain, with Iran’s 90,000-bpd Nowruz oilfield, being developed by Royal Dutch/Shell, shut down owing to technical problems, a senior Iranian oil official was quoted as saying on Saturday.
And in Ecuador, where output has just returned to normal after being hobbled by a week-long protest, activists vowed on Sunday to resume protests within the next 48 hours if energy firms did not agree to increase local investment.