Katrina Wreaks Havoc On Oil Market

(CBS/AP)  The potential damage to oil platforms, refineries and pipelines that remain closed along the Gulf Coast drove energy prices to new highs Tuesday, with crude futures briefly topping $70 a barrel and wholesale gasoline costs surging to levels that could lead to $3 a gallon at the pump in some markets.

The buying frenzy reflected uncertainty and fear about the full extent of the damage Hurricane Katrina inflicted on key energy infrastructure.

Tom Kloza, director of the Wall, N.J.-based Oil Price Information Service, told CBS' Julie Chen of The Early Show that Hurricane Katrina hit the U.S. oil supply at the "worst possible time," because it is driving season and prices are already high.

"This is an extremely serious situation," said Kloza.

Analysts said that even if Katrina did less harm than feared its effects would nevertheless tighten the availability of already scarce refined products, such as heating oil and gasoline.

A JP Morgan report released Tuesday says Katrina has already forced a production halt in about 630-thousand barrels of crude a day from the Gulf of Mexico, some 12 percent of daily output. Analysts say that figure is likely to rise significantly in the coming days, once assessments are made.

Analysts are concerned that the slower production could constrain the supply of home heating fuels for winter and they note the hurricane season isn't over yet.

And analysts believe that the operations of natural gas processors and chemical manufacturers, who depend heavily on the natural gas as a feedstock, could be disrupted for days, if not weeks.

"Refineries are flooded, don't have power, are under very, very dire circumstances," Kloza told Chen.

In wholesale markets on the Gulf Coast, some gasoline was being priced as high as $2.85 a gallon and in the Midwest, prices were as high as $2.65 a gallon, Kloza said.

Retail costs are typically 60 cents higher, meaning motorists in these regions could very well see pump prices exceed $3 a gallon.

Light sweet crude for October delivery rose $2.61 to settle at $69.81 a barrel, a record close since trading began in 1983 on the New York Mercantile Exchange. Prices had reached as high as $70.85, an intraday high on Nymex, although still below the inflation-adjusted high of about $90 a barrel that was set in 1980.

September gasoline futures rose 41.39 cents to settle at $2.4745 a gallon on Nymex, where trading was halted briefly after the exchange's 25-cent trading limit was reached. Heating oil futures climbed 16.71 cents to $2.0759 a gallon.

The run-up in natural gas and heating oil futures may mean sharply higher home-heating bills lie ahead this winter.

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