The powerful Hurricane Katrina ravaged crude production in the southern United States Monday, prompting the US government to declare it might dip into its emergency oil reserves if necessary.
The administration said it could tap its 700-million-barrel Strategic Petroleum Reserve as the huge storm slammed into the Louisiana coast, hitting on-shore refineries around the deserted city of New Orleans.
In the Gulf of Mexico, which accounts for a quarter of total US oil output, 92 percent of crude and 83 percent of natural gas production were shut down, according to government data.
Oil futures soared over 70 dollars a barrel for the first time earlier as Louisiana braced for Katrina's tumultuous arrival. But they fell back sharply later on the potential for the US government's reserve coming into play.
Up to 40 percent of refinery production along a wide swathe of the US coast from Texas in the west to Florida in the east was said by experts to be affected.
"We probably deal with almost a third of the nation's domestic oil that is produced, and that will most likely be shut down," New Orleans Mayor Ray Nagin told CNN after ordering the city's evacuation.
"That could have a significant impact on oil prices going forward," he said.
New York's main futures contract, light sweet crude for delivery in October, touched a high of 70.80 dollars in Asia early Monday before retrenching to close at 67.20 dollars, up 1.07 dollars on Friday's close.
Traders said 80 dollars a barrel in the short term was realistic.
"We won't know the impact (of Katrina) for days or weeks, so there's a lot of uncertainty to know how it's all affecting production over time," Refco analyst Marshall Steeves said.
Oil prices have boomed as refineries struggle to cope with sky-high energy demand around the world. Any problems with production have been sending prices up still further.
The US government's Minerals Management Service said 711 rigs and platforms in the Gulf of Mexico extracting both oil and natural gas had been evacuated as of Monday.
The Louisiana Offshore Oil Port, the biggest US crude terminal which handles one-tenth of all oil imported into the country, closed its pipeline to refineries.
British energy giant BP, one of the biggest players in the Louisiana oil industry, said it had completed evacuating its 4,000 personnel from sites in the state and said a "significant amount" of its production was suspended.
Other oil majors reported similar evacuations and production curbs.
Louisiana is home to 17 refineries capable of processing 2.8 million barrels a day. As of Saturday, seven of those refineries had halted production because of Katrina.
The southern state also hosts two of the four underground caverns at which the US government stores its emergency oil reserves.
The Department of Energy is in close contact with refiners struggling to cope with the impact of Katrina, DoE spokesman Craig Stevens said.
Based on past experience after other damaging hurricanes, opening up the strategic reserve "is on the table, and it's certainly a possibility, but there hasn't been a request yet", he said.
"As we go over the next 24 to 48 hours, we'll be getting more information and we'll see where we go, but the request has to come from the refiners," Stevens added.
Following Hurricane Ivan in September 2004, the DoE released more than five million barrels of crude oil to a number of refiners including Premcor, ConocoPhillips and Shell Trading to ensure smooth supplies.
Industry experts said insurance losses from Katrina could top payouts that followed Hurricane Andrew, which in August 1992 caused nearly 21 billion dollars in damages in today's money.
related report
Hurricane Sends Runaway Oil Rig Crashing Into Alabama Suspension Bridge
Mobile, Alabama (AFP) Aug 29, 2005 - An oil rig tore free of its moorings as Hurricane Katrina lashed the Alabama coast, before surging downriver and smashing into a suspension bridge, witnesses said Monday.
The platform broke free from the Bender shipbuilding and repair yard in Mobile during the morning as the then Category Four Hurricane walloped the southern US coast.
An oil rig that broke loose during Hurricane Katrina 29 August 2005 is wedged under the Cochrane Bridge in Mobile, Alabama. The rig tore free of its moorings as Hurricane Katrina lashed the Alabama coast before surging downriver and smashing into the suspension bridge. AFP photo by Stan Honda.
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