NEW YORK – Crude oil prices slipped Thursday after racing past $68 a barrel earlier in the day, as traders waited to see if a weakened Hurricane Rita (search) will bring another round of devastation to the Gulf Coast, disabling refining capacity and driving fuel prices higher.
Light sweet crude for November delivery slipped 30 cents to settle at $66.50 a barrel on the New York Mercantile Exchange (search), following three days of advances. Brent crude oil futures for November fell 13 cents to $64.60 a barrel on London's International Petroleum Exchange.
Oil jumped more than $1 in early trading as Rita closed in on Texas, raising fears it could cripple major production facilities largely untouched by Hurricane Katrina three weeks ago, as well as drive up at-home energy costs this winter.
But energy prices fell back at midday, pulled lower by reports that the storm lost steam throughout the day and was downgraded to Category 4 storm from Category 5. Rita is projected to make landfall Saturday between the Louisiana border and Corpus Christi, Texas — the heart of U.S. oil production.
While forecasters said the storm could slow further by the time it reaches land, analysts say the lesser winds still pose a serious threat to oil rigs and refineries. Worries remain about a direct hit on the Texas coastline — home to more than a quarter of U.S. refining capacity — when some refineries near New Orleans remain shut following Katrina's ravaging last month.
"We have to keep in mind that we were operating at about 100 percent before Katrina," said Sheraz Mian, senior oil analyst with Zack's Investment Research. "If you take out another 10 percent of capacity, we are talking about some serious distillation capacity coming offline.
"We are faced with perhaps the worst possible situation that planners and policy makers could imagine," Mian said.
Natural gas futures — about twice last year's levels — gave back some early gains but ended higher, heightening concerns about a consumer squeeze from soaring heating costs this winter while gasoline and heating oil could be near record highs.
Natural gas climbed 19.6 cents to $12.79 per 1,000 cubic feet and heating oil rose less than a penny to $2.046 a gallon, while gasoline rose 8.63 cents to $2.1394 a gallon.
Nymex crude oil prices are more than 40 percent higher than a year ago, though still below the intraday record of $70.85 set Aug. 30 when Katrina struck Louisiana, damaging numerous refineries and platforms and shutting down about 90 percent of Gulf Coast production.
Phil Flynn, an analyst with Alaron Trading in Chicago, said prices may have cooled off because the market is drawing confidence from the fact that the nation's oil and gas operations were quickly recovering from last month's storm before Rita's approach triggered precautionary evacuations throughout the Gulf Coast.
"Underneath, if it weren't for Rita, (the industry) had some very good news on the front," Flynn said. "If Rita doesn't live up to her billing, we possibly could see a nice correction in energy prices."
But if the storm does unleash a significant amount of damage, crude oil could climb as high as $73 per barrel and gasoline as much as $2.70 per gallon, he added.
As Rita plowed through the Gulf of Mexico, more than 1.3 million Texas and Louisiana residents were ordered to evacuate. Eleven of Texas' 26 refineries, with a combined daily capacity of 4 million barrels, have been shut, according to Dow Jones Newswires.
In its mid-afternoon report Thursday, the Minerals Management Service (search) said 605 platforms in the Gulf were unstaffed, up from 469 on Wednesday. More than 90 percent of the region's oil production was blocked, while more than 65 percent of natural-gas production was affected.
A day earlier, the Department of Energy (search) reported slightly higher U.S. inventories of gasoline and distillate fuels, including heating oil. Crude inventories fell 300,000 barrels to 308.1 million, but are still 12 percent higher than last year.
"Currently, we are fine with respect to distillates and natural gas," Mian said. "But the extent of damage to production facilities in the Gulf and to refineries will determine how things unfold over the next few months."
The International Energy Agency said Thursday it will be able to act quickly to release more oil stocks if Rita does major damage to energy facilities in the U.S. Gulf of Mexico.
"If any supply disruption occurs again we can make a speedy decision," IEA Executive Director Claude Mandil said.
Earlier this month, the IEA released 2 million barrels a day for 30 days in strategic stocks to help offset supply disruptions caused by Katrina.
The head of the U.S. Energy Information Administration, Guy Caruso, criticized OPEC (search) for constraining production to keep prices high — days after the oil cartel pledged to make available an additional 2 million barrels daily to cope with high demand.
"Without question," Caruso said Wednesday when asked during a Senate Commerce Committee hearing whether the Organization of Petroleum Exporting Countries has contributed to soaring oil prices.
"OPEC policy has been to constrain production and collude ... Under the FTC definition of collusion and price-fixing, yes," he said. The EIA is the statistical and analytical wing of the U.S. Department of Energy.
OPEC members, responsible for a third of global output, have said the problem is insufficient refining capacity, not the amount of crude available.