US crude surges 7 per cent on Hurricane Katrina

SINGAPORE - US crude prices surged 7 per cent to a new record high above US$70 ($102) a barrel in opening trade on Monday as Hurricane Katrina, one of the most powerful US storms ever, shut in oil production and closed refineries.

Oil futures on the New York Mercantile Exchange soared nearly US$5 to a new record high of US$70.80 a barrel, above last week's previous record US$68, after producers and refiners shut down operations ahead of the maximum power Category 5 hurricane.

It was later trading up US$3.72 a barrel, 5.6 per cent, at US$69.85 as traders feared the storm could do lasting damage to infrastructure, further straining an industry that has struggled to keep up with robust demand growth for the past two years.

Oil producers in the US Gulf of Mexico have closed down 633,000 barrels per day (bpd) of production capacity, about 42 per cent of the total in the Gulf, the companies said on Sunday. The Gulf provides about a quarter of total US domestic crude production.

Seven southeast Louisiana refineries with a combined daily refining capacity of 1.449 million bpd were shut, about 8.5 per cent of US crude processing capacity.

The Louisiana Offshore Oil Port (LOOP), a major crude importing facility, also shut down.

Katrina, the 11th named storm in what's expected to be an unusually severe season, strengthened at the weekend into a rare Category 5 storm, churning up winds of nearly 270 kph, the National Hurricane Centre said.

The storm revived memories of last year's Hurricane Ivan, a Category 3 storm that ripped up pipelines and platforms in the Gulf of Mexico, disrupting production for months.

Katrina, which was measured as one of the four strongest storms on record, was expected to hit land at around sunrise on Monday near the low-lying Gulf Coast city of New Orleans, forcing hundreds of thousands of residents to flee inland.

The Organisation of the Petroleum Exporting Countries (Opec), which has been pumping at near capacity for nearly a year in an effort to reign in the buoyant market, expressed rising concern over robust prices, which have rallied 61 per cent since the beginning of the year.

"Opec will be exploring various options for the September meeting which will hopefully contribute to moderate prices," said Opec President Sheikh Ahmad al-Fahd al-Sabah, also Kuwait's oil minister, in a statement in Kuwait City.

He did not elaborate on the nature of these options and analysts have said Opec has little artillery left in its arsenal to restrain prices, which are being driven by refinery constraints and fears about a thin cushion of spare capacity.

Opec meets on September 19 to chart output policy.

Sheikh Ahmad said Opec has been producing more than the call on Opec crude by 1.5 million barrels per day in the third quarter of 2005, a fact borne out by steadily rising crude inventories.

"Furthermore, demand is starting to slow down as a result of high prices," he said. "In view of these fundamentals, one expects to witness some price moderation."

- REUTERS