U.S. Calms Surging Oil Prices

VIENNA -- Crude oil prices turned lower Wednesday, after a top U.S. energy official said the government would release oil from its reserves. Prices had earlier climbed back above $70 per barrel on concern about the extensive damage Hurricane Katrina caused to oil platforms and refineries in the Gulf of Mexico.

The announcement reflected how seriously the U.S. administration viewed the situation -- the reserve is meant to cushion the nation against national emergencies.

U.S. Energy Secretary Samuel Bodman said the government would release an unspecified amount of oil from its strategic petroleum reserves, a move designed to give refineries in the Gulf Coast area a temporary supply of crude oil to take the place of interrupted shipments from tankers or offshore oil platforms affected by the storm.

Light sweet crude for October delivery on the New York Mercantile Exchange rose as high as $70.65 before slipping back after Bodman's comments to $69.29, down 52 cents from Tuesday's settlement price.

Still, the move would not remedy destruction to refineries churning out much of the unleaded regular and premium grade used in the United States. That damage was sure to cut into already tight supplies, driving prices up not only on the trading floor but also at the pumps.

In a reflection of what will soon hit car owners in their wallets, gasoline prices, which closed up 20 percent Tuesday, continued climbing Wednesday. Unleaded gasoline rose by more than 6 cents to $2.5350 per gallon (3.8 liters) by afternoon in Europe.

"Hurricane Katrina is going to cost everyone, no matter where they live," said Platts, an energy reporting agency. "It's just a matter of time before the effect will be seen on the pump price."

Heating oil fell nearly 3 cents to $2.0490 a gallon, reflecting expectations that U.S. figures due out later Wednesday will show an increase in stocks.

The U.S. Minerals Management Service said 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.

October Brent crude fell 21 cents to $67.36 a barrel on London's International Petroleum Exchange.

Oil prices are about 60 percent higher than a year ago.

Still, with gasoline supplies already tight before the storm hit, analysts suggested that additional troubles caused by refinery shutdowns would be of most concern to U.S. drivers already beset by high prices.

"Crude is a sideshow here," said Paul Hornsnell, head of energy research at Barclays Capital in London. "We were expecting gas to spike even before the storm hit because the situation was already very, very tight -- refineries were having trouble increasing production and inventories were [already] at a 20-month low -- and that was last week."

Eight refineries were shut down due to Katrina -- half of them producing gasoline. Vienna's PVM Oil Associates additionally reported at least three others flooded and power failures sidelining others.

Hornsnell said the damage translated into an estimated 30 million-barrel loss in gasoline output -- a problem that cannot be solved by increasing crude.

"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."