Royal Dutch Shell dealt a further blow to the world's oil markets on Friday after the group forecast production in the Gulf of Mexico would not return to the levels seen before Hurricane Katrina hit last month, by the end of the year.
Assessing the impact of the storm that closed refineries in the U.S.'s most important oil producing region, Europe's second largest oil group said it expected production in the region to reach only 60 percent of the pre-hurricane levels by the end of the year.
It added that refineries at some sites including Mars, one of the gulf's largest deep water platforms capable of producing 220,000 barrels a day, were unlikely to resume activities this year.
The region, which produced an average 450,000 barrels of oil equivalent per day or about 15 percent of group production in the first half of the year, is now only producing 160,00 boe/d following the damage caused by the storms.
Analysts estimated that the outages would reduce Shell's annual production by between 1 and 2 percent concentrated into the last three months of the year. The group is more reliant on the region than its peers, although BP is expecting to increase production there in the next 3-4 years.
"If there was any oil major you would not want to be hit by a hurricane it would be Royal Dutch Shell," said Jason Kenney at ING.
"This is the last thing it really needed. But they are very capable of getting through this and getting over it," he added.
Earlier this year Shell unveiled plans to boost its flagging oil and gas production to avoid the repeat of last year's debacle when it was forced to cut its reserves estimates five times.
The news comes days after it emerged that the U.S. government is putting pressure on oil producers to postpone scheduled maintenance to stem the rise in gasoline prices.
Earlier this week the energy department also raised its official 2006 oil price forecast after the Hurricane halted production in the region. The department said it now expected the price of a barrel of crude oil to average $70 for the rest of the year and about $60 for the whole of next year.
In London on Friday oil prices reversed recent declines and headed back towards $65 for a barrel of crude. U.S. light crude prices also rose in New York despite having fallen heavily earlier in the week.
In addition, Shell said a third of its refining capacity in the U.S. had been knocked out by Hurricane Katrina. Before the storm Shell refined a million barrels of oil a day at its seven refineries in the U.S. Two of these sites -- Motiva Convent and Motiva Norco -- had been affected but were expected to return to pre-hurricane levels by the middle of next week.