Oil prices surged to a record above $70 a barrel today as one of the biggest hurricanes in US history disrupted oil and gas production in the Gulf of Mexico.
The region is home to a quarter of total US oil and gas production.
US crude oil futures jumped nearly $5 a barrel in electronic trade to touch a peak of $70.80 a barrel, the highest front-month price since the New York Mercantile Exchange (NYMEX) began trading the contracts in 1983.
Oil traded up $2.37 a barrel at $68.55 at 1447 GMT (15:47 Irish time), trimming early gains after Hurricane Katrina slammed into Louisiana and Mississippi as a powerful Category 4 storm on the five-step Saffir-Simpson scale.
Katrina threatens lasting damage to vital US oil and refining assets, further straining an industry that has struggled to keep up with two years of rapidly rising oil demand.
"The impact on the market is fairly traumatic," said Frederic Lasserre of SG Commodities. "The forecasters were right about this being an active storm season. We're having more hurricanes in a market that is already tight."
Lasserre said the market would assume a similar impact to that of Hurricane Ivan last September, which wiped out a total of around 45 million barrels of U.S. oil output over six months.
The impact of lost production and imports on US crude stocks would likely support prices for some time, he said.
"The price floor for the market will be higher than it was before Katrina," Lasserre said.
More than half of all US crude oil production in the Gulf of Mexico was reported closed down due to the hurricane, with the total expected to rise significantly as more operators report affected production to the U.S. government on Monday.
The full extent of the damage and how long it will affect supplies will only be known after the storm clears.
"We're just going to have to wait and see what's left," said Chevron Corp. spokesman Matt Carmichael.
The Gulf of Mexico normally pumps about 1.5 million barrels per day (bpd) of US crude, a quarter of domestic output and equivalent to nearly 2 percent of global oil production.
"The only way we can avoid yet higher prices is if U.S. President George W. Bush releases supply from the Strategic Petroleum Reserve," said David Thurtell, strategist at Australia's Commonwealth Bank.
The administration said it was willing to consider loaning crude from its 700-million-barrel SPR if refiners requested oil.
The U.S. Department of Energy loaned out 5.4 million barrels last year after Ivan.
OPEC's President Sheik Ahmad al-Fahd al-Sabah said that he would propose the group raise both real oil output and its output target by 500,000 bpd at its meeting in September in an attempt to lower prices.
He said most of the extra oil would come from Saudi Arabia, the only OPEC member with sizeable spare capacity.