Oil prices up as new storm sweeps in

A new storm bearing down on the Gulf coast of the United States revived jitters over winter fuel supplies and pushed oil prices sharply higher today.

The 4% rise in the cost of a barrel of crude oil came as Opec ministers met to examine ways in which they could draw the sting from the market.

Weather reports showing Tropical Storm Rita gathering strength close to the Bahamas led to parallels being drawn with Hurricane Katrina, which wreaked havoc in the Gulf of Mexico last month.

Forecasters are warning that Rita could be upgraded to a hurricane by the end of today and is on a projected course that will see it land on the Texas Coast - not far to the south of major oil facilities in the region.

Kevin Norrish, at Barclays Capital, said: “With the oil market even more vulnerable to disruptions than it was before Katrina, Rita is likely to keep the market on edge and crude oil and product prices well supported early this week.”

With more than half of oil production still blocked in the Gulf of Mexico and US refining capacity short of pre-storm levels any further storm damage could leave the industry overstretched.

The rise in oil prices to $65.80 a barrel today has revived fears that UK petrol retailers could respond by putting up the cost of fuel at the pumps again.

Katrina sparked panic buying at filling stations as motorists filled their tanks in case fuel supplies ran out, but nationwide protests against rising prices failed to materialise on a scale to match the disruption of 2000.

Major retailers including Shell have followed the example of supermarkets Asda and Tesco by cutting the price of unleaded petrol in the UK in recent days since oil prices began to fall back from a record high above $70.

Ray Holloway, of the Petrol Retailers Association, said: “If we were to still see a rising oil market then it would have implications for next week’s (pump) prices.

“If this storm was to grow in intensity then we’ve potentially got Katrina all over again.”

Opec ministers meeting in Austria will resume their discussions tomorrow on whether to increase oil production in an effort to take the steam off crude prices.

OPEC president Sheikh Ahmed Fahd Al Ahmed Al Sabah, who is also Kuwait’s oil minister, said support was building for a proposal to make available two million extra barrels of oil a day.

But the cartel maintained that it was refinery shutdowns that was putting pressure on prices rather than supply.

“Nobody is against the two million barrels proposal,” he said.

Oil ministers are also considering a further option, which would boost the group’s current output ceiling of 28 million barrels a day by 500,000 barrels.