Oil Prices Surge as Rita Nears

Crude-oil prices rose Wednesday as traders braced for the possibility that Hurricane Rita could smash into key oil facilities in Texas.

Workers fled oil rigs in the Gulf of Mexico (search) less than a month after Hurricane Katrina tore through the same region, as Rita strengthened into a Category 4 hurricane Wednesday.

"Prices are going to be driven directly by the projected path of the storm," said John Kilduff, analyst at Fimat USA. The National Hurricane Center (search) said Rita could reach Category 5 status, and is likely to hit Texas, the heart of U.S. oil production.

Light, sweet crude for November delivery rose 60 cents to settle at $66.80 a barrel on the New York Mercantile Exchange (search), after surging as high as $68.27 earlier Wednesday.

Heating oil jumped nearly 3 cents to $2.0387 a gallon, while gasoline surged more than 7 cents to $2.0531 a gallon.

On London's International Petroleum Exchange, November Brent crude oil futures gained 53 cents to $64.73 a barrel.

Oil prices slipped from earlier highs after forecasters said Rita would likely hit south of Galveston, Texas, which is near Houston. Traders had been worried about the already-ravaged oil facilities off the Louisiana coast.

"The chance of it turning north to Louisiana is getting slimmer," said Agbeli Ameko, managing partner at the Denver-based energy research firm Enercast.com.

Data showing that gasoline and distillate fuel inventories rose in the last week came as a surprise to analysts and also helped prices ease off highs, but the calming effect was limited.

"It's a silver lining, but it's not positive enough to get traders to stop staring down Rita," Kilduff said.

The Department of Energy (search) said Wednesday the nation's gasoline inventories rose 3.4 million barrels to 195.4 million barrels in the week ended Sept. 16, still more than 5 percent below year-ago levels.

Inventories of distillate fuels, which include heating oil, rose 800,000 barrels to 134.1 million, more than 5 percent above year-ago levels.

Crude inventories dropped 300,000 barrels to 308.1 million, but are nearly 12 percent above year-ago levels.

Crude oil prices are nearly 45 percent higher than a year ago. They reached an intraday record of $70.85 on Aug. 30 after Katrina made landfall.

Forecasters said Rita's winds have reached 140 mph and is predicted to make land Saturday somewhere between northern Mexico and western Louisiana, most likely along the central Texas Gulf Coast between Galveston and Corpus Christi.

The U.S. Minerals Management Service said Wednesday that 469 platforms in the Gulf are unstaffed, up sharply from 136 on Tuesday. More than 73 percent of oil production in the region is blocked, up from 58 percent Tuesday. More than 47 percent of gasoline production, up from 35 percent, is also blocked.

"Some of those refineries in Texas, they're at sea level. It's a table top, it floods every easily," said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York.

Oil refining in Texas accounts for a quarter of the nation's total output of petroleum products, including gasoline and distillate fuels. According to the Energy Department, 18 of Texas' 26 refineries are located near the Gulf of Mexico, with a combined distillation capacity of 4 million barrels per day.

Rita is also thwarting recovery efforts as refineries gear up for the Northern Hemisphere winter, the peak season for production of distillate fuels, which include heating oil, jet fuel, kerosene and diesel.

Silliere added that disruption to diesel production could hurt harvest season in the Midwestern United States.

The oil industry has lost production of more than 27 million barrels of oil since Aug. 26 — about 5 percent of the Gulf's yearly oil output, MMS said Wednesday.