Oil Prices Surge Above $70 a Barrel
Associated Press | August 31, 2005
By EN-LAI YEOH
Reports of extensive damage and photos of fallen oil platforms in the Gulf of Mexico sent crude oil prices surging above $70 Wednesday, as the realities of the long-term damage from Hurricane Katrina began to sink in.
Royal Dutch Shell PLC's mammoth Mars platform became the latest _ and potentially the largest _ Katrina casualty, as aerial photos showed significant damage to the top of the facility that normally churns out 220,000 barrels of crude and 220 million cubic feet of natural gas a day.
The U.S. Coast Guard said at least seven rigs are adrift, while eight refineries have shut down. Companies continued to send planes and helicopters to get an aerial view of their assets and began escorting some previously evacuated workers back to offshore facilities.
Light, sweet crude for October delivery rose as high as $70.57 a barrel on the New York Mercantile Exchange midmorning in electronic trading in Singapore, before slipping back to $70.40, up 59 cents from Tuesday.
During New York trading, futures rose to an intraday record of $70.85, before settling at $69.81, a record settlement since trading began on the Nymex in 1983.
Oil prices are now more than 60 percent higher than a year ago, although still below the inflation-adjusted high of about $90 a barrel that was set in 1980.
"The markets are jumpy amid all the uncertainty and confusion, with much offshore production still shut in," said Energyintel analyst Tom Wallin. "Initial damage assessments from companies are mixed, but the rumors on the second day are that the damage could be heavy and extensive, supply curtailments could be long."
But Wallin said natural gas, not crude, was the commodity most likely affected by Katrina's wrath.
"Crude oil production could be replaced by a release of barrels from the U.S. strategic reserve, there is no such safety valve for natural gas," he said. "For gas, the fear is that commercial stocks could be severely dented, leaving inadequate inventories for the winter."
In Asia Wednesday, natural gas futures spiked 50 cents to $12.151 per 1,000 cubic feet after earlier touching a record intraday price of $12.30.
Gasoline was at $2.5450 a gallon, up 7 cents, while heating oil was also up at $2.0908 a gallon.
The U.S. Department of Energy is scheduled to release its midweek petroleum data snapshot that could show another fall in gasoline inventories, primarily from the summer driving season, analysts polled by Dow Jones Newswires said.
Crude and distillate stocks are likely to rise. Katrina's influence on U.S. stocks will only be realized in next week's report but some analysts already claim to know the score _ even if the Bush administration taps the nation's crude oil stockpile to help refiners.
"In the next few months, there's no upside," said economist Mark Zandi of Economy.com, an economic consulting service. "And this winter, we're going to feel it more noticeably as people pay record gas prices and record home-heating bills."
The Strategic Petroleum Reserve is the nation's emergency supply of 700 million barrels of crude oil buried in salt caverns in Texas and Louisiana.
President Bush was expected to authorize the release of just enough oil from the reserve to help make up for production losses directly related to the powerful storm, with a stipulation that oil companies replace the oil later with a larger quantity.
Katrina's impact on energy markets could be immense, as there is very little excess capacity left globally to offset any production losses in a time of high demand.
The U.S. Minerals Management Service said Tuesday 95 percent of the Gulf of Mexico's oil output was out of service, with more than 4.6 million barrels of production lost since Friday. The agency said 88 percent of natural gas output was shut down, resulting in a loss of 25.4 billion cubic feet of lost production since Friday.
Some of the havoc Katrina caused included:
_ Newfield Exploration Co. said one of its production platforms disappeared entirely.
_ Rowan Cos. said it believes a rig capsized and sunk off the coast of Louisiana.
_ An oil drilling platform washed up onto Dauphin Island, a weekend retreat off the Alabama coast, but it was not known where the platform came from.
_ The Louisiana Offshore Oil Port, the largest oil import terminal in the United States, is closed.
_ The Colonial Pipeline, which transports refined products such as gasoline, heating oil and jet fuel from Houston to markets as far away as the Northeast, remains offline.
Shell spokeswoman Darci Sinclair meanwhile, could not immediately say how damaged the Mars platform was until a full assessment was made.
The death toll from Katrina is expected to be in the hundreds, with millions more homeless.
The Organization of Petroleum Exporting Countries acting secretary general Adnan Shihad-Eldin said Tuesday he feared crude oil prices were nearing levels that the global economy could not keep pace with.
The cartel's biggest member, Saudi Arabia, said it was ready to boost output to 11 million barrels a day to replace any shortfalls in production but previous OPEC pledges have done little to ease market fears over supply.