Katrina Sweeps Oil Over $70

VIENNA -- Crude oil futures briefly surged past $70 per barrel for the first time Monday as Hurricane Katrina barreled toward the heart of U.S. oil operations in the Gulf of Mexico, shutting down an estimated 1 million barrels of refining capacity.

The Category 4 storm advanced on 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.

"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 on the New York Mercantile Exchange jumped as much as $4.67 per barrel in Singapore to hit a high of $70.80 per barrel before slipping to $69.71 by afternoon in Europe. That was still up $3.58 from its close on Friday in New York. Brent crude was not trading Monday, with London's International Petroleum Exchange closed for a bank holiday.

Katrina has already forced the shutdown of an estimated 1 million barrels of refining capacity and curbing offshore production, but 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 Victor Shum, an energy analyst at Purvin & Gertz.

The Gulf of Mexico normally produces 1.5 million barrels of crude oil per day, or about one-quarter of the United States' domestic output, according to the U.S. Mineral Management Service. "It looks like the perfect storm to drive prices up," Shum said.

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.

Some analysts say the only way to rein in prices would be for the United States to tap its petroleum reserves.

"[That's] the only thing that will prevent further significant price rises from here," said commodity strategist David Thurtell of Commonwealth Bank of Australia.

Oil companies have already evacuated workers and shut down more than 600,000 barrels of daily production in the Gulf.

 The U.S. government would use oil from its Strategic Petroleum Reserve if refiners fall short in the aftermath of Katrina, a U.S. Department of Energy spokesman said Monday. Spokesman Craig Stevens said the government was in contact with oil and gas companies.

Stevens said there was "certainly a possibility" that the government would loan crude from the 700-million barrel reserve to refiners who requested the oil to cover shortfalls. "At this point we do not know what the need is and that should develop over the next day or so, and once that happens a decision will be made," he said.