Oil prices surge above $70 a Barrel on Katrina Damage

Crude oil rose above $70 a barrel and gasoline reached a record for a third day after Hurricane Katrina paralyzed U.S. oil output, refining and imports along the Gulf of Mexico coast, forcing wholesalers to ration fuel.

Oil and natural gas platforms were shut for a fourth day, sending natural gas prices to a record as well. Eight refineries in Louisiana and Mississippi, accounting for more than 10 percent of U.S. refining capacity, were closed by the approach of Katrina, the most powerful storm to strike the Gulf coast since 1969.

“You have an oil market that is quite tight in the products side, particularly in the U.S.,” said Robert Mabro, president of the U.K.-based Oxford Institute for Energy Studies. “Then you have a hurricane which closed eight refineries. The market looks at the situation and realizes supplies are even tighter. Prices will only fall if demand declines,” reports Bloomberg.

According to Guardian, with the peak of hurricane season looming next month, some analysts fear more storms could push crude prices towards $80 a barrel, comparable only to the period after the Iranian revolution in 1980, when adjusted for inflation.

"High oil prices are a catastrophe for the people," said the German economy minister, Wolfgang Clement, adding that prices were so high "not because of demand but because of speculation".

Oil prices are now more than 60% higher than a year ago, although still below the inflation-adjusted high of about $90 a barrel that was set in 1980.

"Depending on what we learn in the next few days, this could be the biggest oil supply shock since the 1970s," oil historian Daniel Yergin told the Wall Street Journal. "We are now in the days of reckoning."

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