Crude oil futures spiked to more than $70 a barrel for the first time Monday as Hurricane Katrina targeted an area crucial to the country's energy infrastructure.
The Category 4 storm was on a path to hit New Orleans early Monday, shutting down an estimated 1 million barrels of refining capacity and sharply curbing offshore production in the region.
"This is the big one," said Peter Beutel, an oil analyst with Cameron Hanover. "This is unmitigated, bad news for consumers."
Light, sweet crude for October delivery climbed as much as $4.67 a barrel to hit a high of $70.80 in electronic trading on the New York Mercantile Exchange. The price had slipped back to $68.95 by midday in Europe. That was still up $2.08 from its close on Friday in New York. Gasoline traded at $2.12 a gallon, up 19 cents, or nearly 12 percent, while heating oil rose nearly 14 cents to $1.98 a gallon.
Along with oil and gas futures spiking Monday, natural gas was up. The "out of control" buying is spurred by the prospect that the region's numerous refineries could be idled for weeks by flooding, power outages, or both, Beutel said.
Last September, Hurricane Ivan swept across the region causing heavy damage and reducing the region's output for months. Katrina's winds were fiercer.
The U.S. has ample crude oil supplies, even if major hurricane destruction trims Gulf oil output and foreign imports, but refining capacity is extraordinarily tight. As a result, prices for gasoline, heating oil, jet fuel and other products have flirted with records and could go even higher this week.
"If this thing knocks out significant quantities of refining capacity ... we're going to be in deep, dark trouble," said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York.
The market has been on edge for months, with traders and speculators buying on the slightest fear. With Katrina, all those fears could be realized, Beutel said.
"Basically I could spill a can of oil at my local gas station and you'd see the price of crude go up by $1 per barrel," he said.
Some analysts have said the United States can rein in surging prices by tapping some of its petroleum reserves.
"(That's) the only thing that will prevent further significant price rises from here," said commodity strategist David Thurtell of Commonwealth Bank of Australia in Sydney.
The Bush administration has said the petroleum reserves should be tapped only when there are disruptions of oil imports from overseas.
On Friday, Katrina had been expected to be inconsequential to the energy industry, with many traders selling. That all changed Saturday, when the system gained power and charged west, directly toward areas of offshore oil production.