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. Last Updated: 07/27/2016

Rita Sends Oil Up and Dollar Down

LONDON -- Oil prices rose above $68 per barrel and the dollar fell against the euro on Wednesday as Hurricane Rita threatened to add to U.S. energy supply woes by hammering Gulf of Mexico rigs and pipelines and Texas refineries.

Rita overshadowed OPEC's decision on Tuesday to offer every barrel of its spare capacity to the market in an attempt to control surging prices.

U.S. light crude rose $2.02 to $68.22 per barrel, the highest level in three weeks. Oil prices have risen by more than $5 since the storm formed over the weekend. Rita was strengthening as it moved over the eastern Gulf of Mexico, and was forecast to make landfall over Texas by the weekend, the U.S. National Hurricane Center said.

The dollar fell to 2 1/2-month lows after Katrina smashed into New Orleans last month, and on Wednesday the euro was up 0.9 percent at $1.2230, back at levels last seen before Sunday's inconclusive German election.

Rita threatened to shut facilities unaffected by Katrina, which devastated the Gulf coast of Louisiana and Mississippi three weeks ago and pushed oil to a record high of $70.85 per barrel.

"This is a volatile market, which is extremely jittery about supply shocks," said Justin Smirk, senior economist at Westpac in Sydney. "The hurricane season is still in full swing, and the market can only focus on that right now."

Texas is home to some of the largest plants in the United States, and the state accounts for one-quarter of the refining capacity in the world's largest energy consumer.

Gasoline futures rose 14.59 cents to $2.1225 per gallon. Gasoline prices have risen nearly 19 percent this week.

Four refineries remained shut after Katrina. ExxonMobil said it had to scale back repair work on one of those refineries due to another evacuation of the devastated New Orleans area ahead of Rita.

"It doesn't matter how much crude you pump in; you won't have a meaningful effect on prices if you can't get refined product out," Westpac's Smirk said.

Oil companies reported hundreds of workers had been evacuated from offshore Gulf of Mexico production facilities, which account for one-third of U.S. oil production.

With the latest hurricane halting efforts to restore U.S. Gulf oil production closed by Katrina, OPEC's decision to offer all 2 million barrels of its spare capacity could only dampen prices for a matter of hours.

Non-OPEC member Mexico also pledged to maximize production in response to the current market climate.

But most analysts are skeptical that such efforts could have an impact given that the fundamental constraints lie in refined oil products rather than crude itself.

"It doesn't matter how much crude you pump in, you won't have a meaningful effect on prices if you can't get refined product out," said Smirk.

U.S. oil stock data due out later Wednesday were expected to show a small impact from Hurricane Katrina last week.

U.S. gasoline and distillate stocks were each expected to fall 200,000 barrels, a Reuters survey of analysts found. Crude stocks were expected to rise 200,000 barrels after imports turned to normal following Katrina.