Retail gasoline prices are poised to jump to new highs this week as Hurricane Katrina barreled through the heart of U.S. oil and natural gas operations in the Gulf of Mexico on Monday, sending crude-oil futures briefly above $70 a barrel for the first time.
Natural gas futures surged 18 percent after the closure of a critical distribution hub and on concerns that power outages and other storm-related damage could prevent processors from running their plants for days, if not weeks.
The Bush administration is considering releasing some oil from the nation's emergency petroleum stockpile to help refiners once the storm passes, though a spokesman said no decision had been made yet.
Wholesale gasoline prices in the New York and Gulf Coast markets soared by 25-35 cents a gallon on Monday following reports that about 8 percent of U.S. refining capacity had been shut down because of the storm. One analyst said pump prices nationwide would likely average more than $2.75 a gallon by week's end, up from about $2.60 a gallon Monday.
"Unfortunately, I don't think $3 a gallon is a hyperbolic number in some markets anymore," said analyst Tom Kloza of Wall, N.J.-based Oil Price Information Service. He emphasized that the market reaction is a reflection of supply tightness, not shortages.
The Category 4 storm hit an area crucial to the U.S. energy infrastructure - offshore oil and gas production, import terminals, pipeline networks and numerous refining operations in the southern states of Louisiana and Mississippi.
On Wall Street, companies that ferry workers to and from offshore oil platforms, as well as those that provide other support services to the industry, saw their stock prices rise. Shares of Offshore Logistics Inc. climbed 2.58, or 8 percent, to $35.03 on the New York Stock Exchange, where shares of Oceaneering International rose by $1.45, or 3 percent, to $43.65.
Chevron Corp., Royal Dutch-Shell Group, BP PLC, ExxonMobil Corp. and others began evacuating workers from the region over the weekend. Refineries capable of processing some 1.6 million barrels a day were closed and more than 600,000 barrels a day of oil production in the Gulf was shut down. Sabine Pipe Line LLC on Sunday shut down the Henry Hub, a natural gas distribution center that connects to interstate pipelines.
The Louisiana Offshore Oil Port, the largest oil import terminal in the United States, evacuated all workers and stopped unloading ships on Saturday.
After slamming ashore, it charged through low-lying New Orleans with winds of 145 miles per hour and the threat of an extremely dangerous storm flood surge.
"The damage to the electric power grid is the most important source of damage to consider in evaluation of the impact of Hurricane Katrina," said energy analyst Dan Lippe of Petral Worldwide in Houston.
Lippe said the operations of oil refiners, natural gas processors and chemical manufacturers could be disrupted for as little as a few days or as long as a few weeks. The extent of the damage will not be known until later this week, he said.
"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 jumped as much as $4.67 a barrel to hit a high of $70.80 a barrel in electronic overnight trading, before slipping back to $68.50. That was still up $2.37 from its close Friday in New York.
Oil prices would need to rise to about $90 a barrel to match the highs of 25 years ago, when adjusted for inflation.
Gasoline futures zoomed 11.5 cents to $2.04 a gallon on Nymex, but on spot markets in New York and the Gulf Coast, prices were as much as 8-15 cents higher, according to Kloza. Nymex heating oil futures rose by 6.34 cents to $1.90 a gallon.
Brent crude was not trading Monday, with London's International Petroleum Exchange closed for a bank holiday.
While the precautionary shutdown of oil production and refining rattled oil markets, analysts said the storm's potential damage to facilities was even more worrying.
"It's not only the suspension of production that's causing concern, it's the fact that we could see potential damage to the platforms, which would cause longer disruptions to production," said energy analyst Victor Shum of Texas-headquartered Purvin & Gertz in Singapore.
The Gulf of Mexico normally produces 1.5 million barrels of crude oil a day, or about a quarter of the United States' domestic output, according to the U.S. Mineral Management Service.
Unlike last year's Hurricane Ivan, which only hit the edge of the oil and natural-gas producing areas in the central Gulf of Mexico, Katrina is plowing right through the heart of that region.
PVM Oil Associates in Vienna, Austria, said Katrina had the potential to do more damage to southeastern Louisiana than Ivan, which damaged seven platforms, 100 underwater pipelines and shut down production at some facilities for several months.
Associated Press Writers George Jahn in Vienna, Austria, Gillian Wong in Singapore and Justin Bachman in New York contributed to this report.