Crude oil futures spiked to more than $70 a barrel for the first time Monday as Hurricane Katrina targeted an area crucial to the country’s energy infrastructure.
The Category 4 storm was on a path to hit New Orleans early Monday, shutting down an estimated 1 million barrels of refining capacity and sharply curbing offshore production in the region.
“This is the big one,” said Peter Beutel, an oil analyst with Cameron Hanover. “This is unmitigated, bad news for consumers.”
Light, sweet crude for October delivery climbed as much as $4.67 a barrel to hit a high of $70.80 in electronic trading on the New York Mercantile Exchange. The price had slipped back to $68.95 by midday in Europe. That was still up $2.08 from its close on Friday in New York. Gasoline traded at $2.12 a gallon, up 19 cents, or nearly 12 percent, while heating oil rose nearly 14 cents to $1.98 a gallon.
Along with oil and gas futures spiking Monday, natural gas was up. The “out of control” buying is spurred by the prospect that the region’s numerous refineries could be idled for weeks by flooding, power outages, or both, Beutel said.
Last September, Hurricane Ivan swept across the region causing heavy damage and reducing the region’s output for months. Katrina’s winds were fiercer.
The U.S. has ample crude oil supplies, even if major hurricane destruction trims Gulf oil output and foreign imports, but refining capacity is extraordinarily tight. As a result, prices for gasoline, heating oil, jet fuel and other products have flirted with records and could go even higher this week.
“If this thing knocks out significant quantities of refining capacity ... we’re going to be in deep, dark trouble,” said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York.
The market has been on edge for months, with traders and speculators buying on the slightest fear. With Katrina, all those fears could be realized, Beutel said.
“Basically I could spill a can of oil at my local gas station and you’d see the price of crude go up by $1 per barrel,” he said.
Some analysts have said the United States can rein in surging prices by tapping some of its petroleum reserves.
“(That’s) the only thing that will prevent further significant price rises from here,” said commodity strategist David Thurtell of Commonwealth Bank of Australia in Sydney.
The Bush administration has said the petroleum reserves should be tapped only when there are disruptions of oil imports from overseas.
On Friday, Katrina had been expected to be inconsequential to the energy industry, with many traders selling. That all changed Saturday, when the system gained power and charged west, directly toward areas of offshore oil production.
Oil companies evacuated workers and shut down more than 600,000 barrels of daily production in the Gulf. Refiners closed down more than 1 million barrels of refining output by Sunday, but that amount could be higher because not every producer reports data, Beutel said.
ChevronTexaco Corp. completed evacuations of all workers in the eastern and central Gulf of Mexico and nonessential workers in the western Gulf late Saturday, company spokesman Matt Carmichael said.
Chevron has about 2,100 employees and contractors working in the Gulf, Carmichael said. It will continue to produce 90 percent of its normal production by remote as long as weather cooperates, he said.
The Louisiana Offshore Oil Port, which processes loads from tankers too large for mainland ports, evacuated all workers and stopped unloading ships on Saturday morning said Mark Bugg, the terminal’s manager of scheduling. The LOOP, 20 miles offshore, is the nation’s largest oil import terminal and handles 11 percent of U.S. oil imports.
Royal Dutch-Shell Group evacuated more than 1,000 offshore workers by Saturday. Only those in the far west remained, the company said on its Web site. BP PLC and ExxonMobil Corp. also brought workers ashore Saturday.
Shell estimated 420,000 barrels of oil and 1.35 million cubic feet of gas per day will be shut in at its central and eastern Gulf facilities. Exxon Mobil said it has ceased daily production of 3,000 barrels of oil and 50 million cubic feet of gas.
Valero Energy Corp. evacuated all but a few workers at its 260,000-barrel-a-day St. Charles refinery on Saturday. Murphy Oil Corp. also shut down its 120,000-barrel-a-day Meraux, La., refinery, and Exxon Mobil Corp. planned to shut down its 183,000-barrel-a-day refinery in Chalmette, La.
Motiva Enterprises, a joint venture of Royal Dutch Shell PLC and state-owned Saudi Arabian Oil Co., began implementing hurricane contingency plans at its 225,000-barrel-a-day Norco refinery on Saturday. Motiva also was exploring contingencies for its 235,000-barrel-a-day Convent refinery, about 45 miles west of New Orleans, Dow Jones Newswires reported.