Oil prices remained within striking distance of $70 a barrel in electronic trading on Tuesday on worries that Hurricane Katrina may have heavily damaged United States crude production facilities, dealers said.
At 12.30pm (4.30am GMT), New York’s main contract, light sweet crude for delivery in October, was at $68,45 a barrel, up $1,25 from its close of $67,20 in the US on Monday.
The contract had struck an all-time high of $70,80 on Monday as the market braced for Katrina’s landfall on the Louisiana coast.
When the monster storm finally slammed into the Louisiana coast, it hit on-shore refineries around the deserted city of New Orleans.
In the Gulf of Mexico, which accounts for a quarter of total US oil output, an estimated 92% of crude and 83% of natural gas production was shut down by Katrina, according to government data.
But prices reversed course after the US Department of Energy said it stood ready to act if requested by oil firms to tackle shortages caused by Katrina’s impact on Gulf of Mexico rigs and Louisiana refineries.
The market was also calmed somewhat by Saudi Arabia’s pledge to raise its production to make up for supply losses caused by Katrina, but dealers said prices are unlikely to recede until the extent of damage is established.
“It’s the most sensitive area for US crude supply, so the market is certainly going to be on watch to see the implications,” said Mark Pervan, a commodities analyst with Daiwa Securities in Melbourne, Australia.
“I don’t think there will be much selling until the damage report is out … it’s still very jittery,” he said.
Saudi Arabia’s Oil Minister, Ali al-Nuaimi, was quoted as saying by the official news agency SPA on Monday that the country, the world’s biggest crude producer, is prepared to raise production to compensate for the losses caused by Katrina.
“Saudi Arabia is ready to increase its production to compensate for any lowering in supplies of crude on the international oil market,” Nuaimi said.
Analysts are not ruling out the possibility of prices breaching $70 a barrel again if the damage inflicted by Katrina is assessed to be extensive.
“If it turns out that there is significant damage done, particularly to refineries, then there might be a strong reaction from the markets,” said Victor Shum, an analyst with energy consultancy Purvin and Gertz in Singapore.
“A lot will depend on the assessment of the damage,” he said.
Industry experts said insurance losses from Katrina could top payouts that followed Hurricane Andrew, which in August 1992 caused nearly $21-billion in damage in today’s money.
AIR Worldwide Corporation, which evaluates catastrophe risks for companies, said Katrina could cost the insurance industry between $12-billion and $26-billion.
Up to 40% of refinery production along a wide swathe of the US coast from Texas in the west to Florida in the east was said by experts to be affected.
“We probably deal with almost a third of the nation’s domestic oil that is produced, and that will most likely be shut down,” New Orleans mayor Ray Nagin told CNN after ordering the city’s evacuation.
“That could have a significant impact on oil prices going forward,” he said. — AFP