Hurricane threat hits oil prices

Oil prices surged above US$67 yesterday as Hurricane Rita bore down on rigs in the Gulf of Mexico and forced six refineries in Texas to shut down.

Companies scrambled to close facilities as Rita, now a maximum Category 5 storm, aimed her peak 281km/h winds on Texas, home to a quarter of United States refining capacity. It is expected to hit land by Sunday (NZ time).

US light crude rose 89c to US$67.69 ($96.94) a barrel. Brent crude was up 68c to US$65.41.

With 18 of Texas' 26 refineries near the gulf coastline, the Energy Information Administration (EIA) said Rita - the third most intense Atlantic hurricane on record gauged by internal pressure - could have a "substantial impact".

Six Texas refineries have closed as a precaution ahead of Rita, suspending total daily production capacity of 1.4 million barrels. With the four facilities still closed in Louisiana and Mississippi after Katrina, around 14 per cent of national refining capacity is now offline.

But the plants in Texas, which are above sea level, face a smaller risk of flooding than the Louisiana refineries that bore the brunt of Katrina, the EIA added.

Prices, still below the record-high US$70.85 a barrel touched in Katrina's wake, were kept in check by a Government report showing US petrol stocks rose by 3.4 million barrels last week, against the 200,000-barrel fall expected by analysts.

Stocks rose as demand for petrol weakened, reinforcing signals that the surge in prices this year - up 56 per cent since January - is starting to curb demand.

US crude stocks fell 300,000 barrels, compared with forecasts for a rise of 200,000 barrels, while supplies of winter fuel heating oil added to their year-on-year surplus.

Rita's approach has halted post-Katrina recovery efforts as oil firms evacuate hundreds of workers from offshore production facilities in the Gulf of Mexico, an area responsible for a third of US oil production.

Supplies in Nigeria - the world's eighth largest exporter - are also at risk. The arrest of a Nigerian warlord over "treasonable" comments this week brought his supporters to the streets and threatening violence. Shell evacuated staff from its headquarters as a precaution in a region that accounts for most of Nigeria's oil output.

"We are getting more and more into supply-driven price increases which are going to be more constraining for growth going forward," International Monetary Fund chief economist Raghuram Rajan said.

"We are at a point where further substantial increases will start mattering far more."

- REUTERS