Oil Prices Take A Break — For Now

Oil and gasoline prices dropped Tuesday as calm returned to markets after last week's decision by industrialized nations to release 60 million barrels of crude from strategic stockpiles as the U.S. oil industry struggled to recover from Hurricane Katrina.

Still, analysts said there were several factors that could force prices to rise, even if crude-supply worries decrease.

"If it's a bad winter, across the northern hemisphere, then we should expect prices to be in the 70s," Leo Drollas, the chief economist at the Center for Global Energy Studies in London, told CBS News Correspondent Steve Holt.

And the long-term effects of Katrina's damage are likely to exacerbate refineries' problems in meeting demand for gasoline and other petroleum products.

"Running the oil industry at capacity, or very close to capacity, of course leaves us hostage to fortune," said Drollas.

The International Energy Agency announced Friday that its 26 members would draw on 2 million barrels a day of oil reserves over the next 30 days — for a total of 60 million barrels — to help offset the loss of output and refining capacity in the U.S. caused by Hurricane Katrina, and restore confidence in the market.

Japan, a member of the Paris-based IEA, said on Tuesday that starting Wednesday it would release to the market about 200,000 barrels a day of crude oil and refined products from its oil reserves held by private refiners, according to Shoichi Nakagawa, minister of Economy, Trade and Industry.

All told, Japan will free a total of 7.3 million barrels over the next 30 days in accordance with Japan's share set by the IEA.

Two storm-shuttered facilities in the United States restarted and flows of crude oil improved enough to allow refineries in the Gulf Coast and Midwest to ramp up production. But four damaged Gulf Coast refineries look likely to remain shut for weeks or even months, taking with them more than 5 percent of U.S. capacity.

Despite the steps by industrialized nations to avert a fuel shortage, analysts warned that long lines at U.S. gasoline pumps and record prices could augur higher oil costs in the months ahead.
"With nearly three months to go until the end of the Atlantic hurricane season, which peaks between mid-September and mid-October, more storms — both real and metaphorical — could be on the horizon," Energy Intelligence said on its Web site.

The high demand and tight supply that pushed oil prices to record highs before Katrina haven't gone away, reports Holt, and energy analyst Orrin Middleton of Barclays Capital in London said the price relief was likely temporary because of concerns about refinery capacities.

"The huge rally we got last week shows that it's a product more than a crude problem," he said. "I don't think further OPEC crude is going to alleviate the refinery problem."

He was alluding to comments from OPEC oil ministers suggesting the organization was considering raising its ceiling by up to 1 million barrels when it meets in Vienna next week.

Rafael Ramirez, Venezuela's oil minister, said his country will follow through on its offer to send 1 million barrels of gasoline to the United States as soon as possible to help victims of Hurricane Katrina. Ramirez reiterated the pledge on Monday while at an oil meeting in Jamaica.

Venezuela and Caribbean leaders are close to finalizing deals to supply the region with oil from the South American nation under preferential terms.

Venezuelan President Hugo Chavez was to meet Tuesday in Jamaica with officials from 16 Caribbean countries, and was expected to sign accords establishing the financing and other details of his Petrocaribe initiative.

Chavez has said Venezuela, the world's fifth largest oil exporter, will donate nearly $20 million to help islands build loading docks and fuel storage depots so they can easily receive fuel.