Oil: Price rises as Rita aims for Texas

NEW YORK - Oil prices rose on Wednesday as Hurricane Rita, now a Category 5 storm, shut crude and natural gas production in the Gulf of Mexico and at least two Texas refineries.

Keeping a cap on prices, a government report said US refinery output recovered last week after damage from Hurricane Katrina.

Rita aimed for Texas with 250km/h winds less than a month after Katrina devastated refineries in Louisiana and Mississippi and sent prices to a record high of US$70.85 a barrel.

"You've got refineries that will start shutting down in anticipation of the hurricane, and then if any of them have permanent damage, we're going to be dependent on imports," said Bill Greehey, head of Valero Energy Corp. the largest US refiner.

"Following Katrina, this is really serious." US light crude settled at US$66.80 a barrel, up 60 cents. It hit a three-week high of US$68.27, before the US supply report. Brent crude in London settled up 43 cents at US$64.73 a barrel.

Rita could hit land early on Saturday in Texas, home to nearly a quarter of US refinery capacity.

"People were worried post-Katrina as we have real tight product supply," said Jamal Qureshi, analyst at PFC Energy in Washington. "Now we have a hurricane heading for the bigger part of the coastal refinery center, threatening to blow a huge hole in products supply." Refiners began preparing for Rita's onslaught on Wednesday.

In Texas City, BP shut its 460,000 barrels per day refinery and Marathon shut its 72,000 bpd plant. Valero said it was reducing rates at its 243,000 bpd Texas City refinery and its 85,000 bpd Houston refinery. Exxon Mobil released nonessential staff from two giant Texas plants.

Petrol futures settled 7.65 cents higher at US$2.0531 a gallon. Petrol has risen 15 per cent this week.

Four refineries were still down after Katrina, which cut supplies so severely that international reserves had to be tapped.

Oil firms also reported that ahead of Rita hundreds of workers had been evacuated from offshore Gulf of Mexico production facilities, which account for one third of US oil production.

Inventories Rise

US petrol stocks rose by a surprise 3.4 million barrels last week, the US government said. Analysts polled by Reuters had expected a fall of 200,000 barrels.

"The numbers didn't do much to slow the rally down," said Jim Ritterbusch, president of Ritterbusch and Associates.

"But they do provide evidence that the oil infrastructure can bounce back pretty quickly after a really bad storm. These petrol numbers give a cushion." Distillates also saw a rise of 800,000 barrels, confounding consensus forecasts for a fall of 200,000 barrels.

US crude stocks fell 300,000 barrels, compared to expectations for a rise of 200,000 barrels.

Another potential flashpoint for global supplies arose in Nigeria as a militant group in the Niger Delta threatened mayhem if they fail to receive word from their leader.

The delta accounts for most of Nigeria's around 2.4 million barrels per day oil output. Production has been cut in the past because of conflicts between rival armed groups or between militants and government forces.

Rita overshadowed Opec's decision on Tuesday to offer all of its 2 million barrels of spare capacity to the market in an attempt to control surging prices.

Most analysts are skeptical that such efforts can have an impact given that fundamental constraints lie in refined oil products rather than crude itself.

- REUTERS