LONDON – Crude oil prices surged above $67 a barrel Wednesday on concerns about a storm that could hit production sites in the Gulf of Mexico and a U.S. government report that showed a decline in the nation's gasoline supply.
Natural gas futures also rallied on the storm fears — even though forecasters anticipate a weak hurricane — as traders recalled the months-long disruption to oil and gas production in the region following last year's Hurricane Ivan.
"The fear of a replication of that is going to keep the market on its toes and we could easily test $70 a barrel," said Marshall Steeves, an analyst at Refco Group Inc. in New York.
Crude oil for October delivery rose $1.69 to $67.40 a barrel in afternoon trade on the New York Mercantile Exchange. That tops the front-month contract's previous intraday high of $67.10, set Aug. 12.
On an inflation-adjusted basis, oil prices would need to hit about $90 a barrel to match the highs of 25 years ago.
September natural gas futures climbed 16.7 cents to $9.850 per 1,000 cubic feet. The contract had surged as high as $10.128 per 1,000 cubic feet in overnight electronic trade.
Brokers said supplies of oil, natural gas, gasoline and other products are adequate for this time of year, explaining that the seemingly unending rally on energy markets is more a reflection of fears about unexpected supply disruptions at a time when demand is strong.
With global demand averaging some 84 million barrels a day this year, the world has scant excess production capacity — about 1.5 million barrels — to offset any lost output.
"A lot of this is 'just in case' buying," said oil broker Mike Fitzpatrick at Fimat USA in New York.
The amount of natural gas in storage in the U.S. stands at 2.52 trillion cubic feet, according to the Energy Department. That is about 0.2 percent below year ago levels.
"I don't see a big problem," Fitzpatrick said.
In its weekly petroleum supply report, the Energy Department said domestic inventories of gasoline fell by 3.2 million barrels last week to 194.9 million barrels, or 7 percent below year ago levels.
U.S. supplies of crude oil grew by 1.8 million barrels to 322.9 million barrels, or 13 percent above year ago levels, the agency said. The supply of distillate fuel, which includes heating oil and diesel, increased by 1.4 million barrels to 132.5 million barrels, or 4 percent above last year's level.
The mixed picture did little to calm nerves on energy markets.
"The inventories have built a little bit, but that doesn't mean an outage somewhere doesn't cause price spikes," said oil broker Tom Bentz at BNP Paribas Commodity Futures in New York.
On London's International Petroleum Exchange, October Brent crude futures rose 18 cents to $64.83 a barrel.
Nymex gasoline futures jumped 6.2 cents to $1.92 per gallon, while heating oil futures gained 4.06 cents to $1.86 per gallon.
Retail gasoline prices are averaging $2.61 a gallon nationwide, an all-time high and 73 cents higher than last year, even as demand continues to rise, according to government statistics.
But with the summer driving season drawing to an end, market focus is expected to shift to heating oil and natural gas as demand for this product usually peaks in the winter.
Stoking bullish sentiment on Wednesday was Tropical Storm Katrina, which formed in the Bahamas and could reach hurricane strength before hitting the coast of Florida later this week. The National Hurricane Centersaid the storm is expected to cross the state and head into the Gulf of Mexico, dropping a foot or more of rain.
While jitters about Katrina's strength and path were the predominant force on energy markets on Wednesday, some analysts said the storm worries may be overblown.
"As with most storms, we think the fear factor is exceeding the likely impact on production here," said Timothy Evans, senior energy analyst at IFR Energy Services in New York.
The market has also been rattled lately by production outages in Ecuador, due to worker unrest, and in Iraq, where insurgents shut down most of the country's electricity grid on Monday.
"The markets are focused on event risk, and the fact that any small disruption in production, due to the thinness of refinery capacity, could lead to a short-term hiccup," said Joe Duarte, a Dallas-based independent energy analyst. "The market is clearly in a different zone now, being driven by momentum more than fundamentals."
Iraqi exports have since begun returning to normal, and the situation in Ecuador also has stabilized.