Oil tipped to hit US$100

Drilling rigs were ripped from moorings, production platforms damaged and pipeline shipments curtailed as Hurricane Katrina cut its vicious swathe through the Gulf of Mexico states, halting almost all oil production - about a quarter of the total United States output.

"There isn't the global capacity out there to replace this loss if it continues for a prolonged period," said Bart Melek, a senior economist at BMO Nesbitt Burns in Toronto.

"Already the market is as tight as a drum and, if anything else happens, say instability in the Middle East, I wouldn't preclude US$100 ($142) oil at all."

A shortage of aircraft and workers has slowed efforts by energy companies such as Exxon Mobil and BP to assess damage to the 819 staffed production platforms and 137 drilling rigs off Louisiana and Texas.

Five oil rigs from the West Delta Platform are missing, one semi-submersible rig is grounded, two mobile offshore drilling units are adrift and two semi-submersibles are listing.

The United States Coast Guard reported the Mars platform, owned by Royal Dutch Shell, was severely damaged. Mars has a production capacity of about 220,000 barrels of oil a day, or about 15 per cent of total gulf production. One report said as many as 20 oil rigs might be missing.

As rigs drift through oil and gas fields, they risk colliding with other structures or dragging anchors across under-sea pipelines - accidents that could cause spills and threaten the environment.

"There's the potential for some environmental impact," said US Coast Guard spokesman Rob Wyman. Acknowledging the shortage of spare global supply - now less than 2 million barrels of crude oil a day - US Energy Secretary Samuel Bodman said the Government would release oil from the nation's 700 million-barrel strategic petroleum reserve to make up for the lost offshore production.

Oil is already 58 per cent higher than a year ago but prices in the US would have to reach US$96 a barrel to match the April 1980 high in inflation-adjusted terms.

But prices could exceed that in the event of any more disruptions, says Peter Linder, an energy analyst and senior adviser to DeltaOne Capital Partners.

"If something goes wrong in Venezuela or Nigeria we could see prices above US$100. Otherwise, we may see prices around the low 70s again."

At least eight oil refineries in Louisiana and Mississippi closed because of the storm. That pushed petrol futures to a record US$2.92 ($4.14) a gallon in New York yesterday.

At Irving, Exxon Mobil's refinery in Chalmette, Louisiana, blackouts are just one obstacle to returning to work.

Employees needed to run the facility are under mandatory evacuation orders, the company says.

"We can't do much without power or people," said Mary Rose Brown, a spokeswoman for San Antonio-based Valero, whose refinery in St Charles, Louisiana, remained closed.

"We can't do anything until folks are allowed to return to the area and we get power to the refinery."

Some drilling rigs set adrift have been found. Diamond Offshore Drilling found its Ocean Warwick rig 106km off site, grounded on Alabama's Dauphin Island. Another Diamond rig drifted 14km from its pre-storm location.

Houston-based Rowan said one of its 22 Gulf rigs might have sunk.

Companies are trying to cope with a shortage of equipment, aircraft and workers.

Replacing lost rigs would not be easy because of demand, said Les Van Dyke, a spokesman for Houston-based Diamond. "The availability of rigs prior to the storm was limited, so operators and drilling contractors aren't going to be able to shuffle these units at will."

Oil companies were lining up aircraft to do inspections

Even when companies can find available employees, getting them to work sites is a challenge.

"The real tragedy isn't the equipment, but the people who work on these rigs who were on shore and had their homes impacted and their families," said Van Dyke.

Refiners and wholesalers were restricting the amount of fuel that retailers east of the Rocky Mountains could buy, said Dan Gilligan, president of the Petroleum Marketers Association of America.

"This will be much more protracted for the industry than Ivan [the hurricane which struck Alabama last September]," said Doug Hohertz, of the Mitchell Group in Houston. He believed another disruption would push oil to at least US$80 a barrel.

"All the people who lived there and worked in the oil industry have been completely displaced.

"Their industry is going to have to figure out how to bring them back."

- BLOOMBERG, REUTERS