Hurricane fears spark $1 rise in oil prices

OIL prices rose over $1 yesterday as Hurricane Rita threatened US Gulf of Mexico oil facilities, but rising fuel inventories helped ease concern of potential supply disruptions.

US light crude rose $1.15 to $67.35 a barrel.

The price was down from an earlier three-week high of $68.27.

Hurricane Rita was heading toward the largest concentration of refineries on the US Gulf Coast.

The storm is forecast to make landfall on Saturday in Texas, home to a quarter of US refinery capacity.

Rita comes just three weeks after Hurricane Katrina hit the cluster of plants near the Louisiana and Mississippi coasts.

“People were worried post-Katrina as we have real tight product supply,” said Jamal Qureshi, analyst at PFC Energy in Washington. “Now we have a hurricane heading for the bigger part of the coastal refinery centre, threatening to blow a huge hole in products supply.”

Refiners began preparing for Rita’s onslaught yesterday. Oil company Marathon said it would shut down its 72,000 barrels per day Texas City refinery. Valero said it was reducing rates at its 243,000 bpd Texas City refinery and its 85,000 bpd Houston refinery.

BP released non-essential staff from its giant 460,000 bpd Texas City plant.

Rita strengthened to a category 4 hurricane as it moved over the eastern Gulf of Mexico and could become category 5, the strongest storm level, the US National Hurricane Centre said.

US refineries were still struggling after Katrina, which pushed oil prices to a record $70.85 a barrel and disrupted supplies so badly that international reserves had to be tapped.

Oil firms also reported that ahead of Rita hundreds of workers had been evacuated from offshore Gulf of Mexico production facilities, which account for one third of US oil production.

US gasoline stocks rose by a surprise 3.4 million barrels last week, the US government said. Analysts polled by Reuters had expected a fall of 200,000 barrels.

“The numbers didn’t do much to slow the rally down,” said Jim Ritterbusch, president of Ritterbusch and Associates.

“But they do provide evidence that the oil infrastructure can bounce back pretty quickly after a really bad storm.”

Distillates also saw a rise of 800,000 barrels, confounding forecasts for a fall of 200,000 barrels.

US crude stocks fell 300,000 barrels, compared with expectations for a rise of 200,000 barrels.