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Oil prices surge in wake of hurricane

Path of destruction * 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 US, 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. Source: AP

Reports of extensive damage and photos of fallen oil platforms in the Gulf of Mexico sent crude oil prices surging above US$70 yesterday 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.

The platform normally churns out 220,000 barrels of crude and 6.2 million cubic meters of natural gas a day.

The US 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 US$70.63 a barrel on the New York Mercantile Exchange midafternoon in electronic trading in Singapore, before slipping back to US$70.43, up US$0.62 from Tuesday.

During New York trading, crude oil futures rose to an intraday record of US$70.85, before settling at US$69.81, a record close 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 US$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," Energyintel analyst Tom Wallin said.

"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," he said.

But Wallin said that 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 US 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," Wallin said.

In Asia Wednesday, natural gas futures spiked US$0.52 to US$12.18 per 1,000 cubic feet (28.3 cubic meters) after earlier touching a record intraday price of US$12.30.

Gasoline was at US$2.57 a gallon, up US$0.09, while heating oil was also up at US$2.096 a gallon. October Brent crude was up US$0.48 to US$68.05 a barrel on London's International Petroleum Exchange.

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 US Minerals Management Service said on Tuesday that 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.
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