Jul 7, 2005 4 min read

WASHINGTON (AP) – Oil prices climbed nearly 3 percent to finish at a record above $61 a barrel on Wednesday and analysts warned of an imminent spike in the retail cost of gasoline as storm-related power outages disrupted some oil production and refining operations in the Gulf of Mexico. The refinery snags caused by Tropical Storm Cindy were minor and temporary, and with petroleum producers preparing for another possible hurricane, the flow of oil from the region was reduced by almost 200,000 barrels per day.

Traders said the rally exemplified the energy market’s skittishness about any lost output at a time when the global supply cushion is thin.

With gasoline futures jumping by more than a dime per gallon, one analyst said he expects a new high at the pump within a matter of days.

“We’ll probably cross the $2.30 a gallon national level by this time next week,” said analyst Tom Kloza of Oil Price Information Service in Wall, N.J. Retail gasoline now averages $2.23 a gallon nationwide, a nickel below the peak that was set during the week ending April 11, according to the Energy Department.

Light sweet crude for August delivery rose $1.69 to settle at $61.28 a barrel and establish a new record on the New York Mercantile Exchange, where oil has been traded since 1983. The previous closing high of $60.54 per barrel was set on June 27.

In London, Brent crude futures gained $1.57 to $59.87 per barrel, setting a new record on the International Petroleum Exchange. The previous high was $59.59.

Crude oil futures are about 60 percent above year ago levels, though still below the inflation-adjusted high above $90 a barrel reached in 1980.

While the rapidly weakening storm Cindy moved inland, Tropical Storm Dennis was expected to make its way into the Gulf this weekend and possibly strengthen into a hurricane before then. The National Hurricane Center’s lead forecaster dubbed Dennis “a minimal hurricane” late Wednesday, contributing to a late-day rally in oil prices.

“The worry is how much more damage would Dennis do if it takes the same path,” said Aaron Kildow, a broker with Prudential Financial in New York.

Petroleum producers evacuated 85 production platforms and 11 drilling rigs, according to the Minerals Management Service, which said 190,000 barrels per day of oil had been shut-in as a result. That is less than 1 percent of daily demand in the United States.

Oil broker Tom Bentz at BNP Paribas Commodity Futures in New York said there was no evidence so far of any serious or lasting damage to oil production or refining facilities. What’s propelling energy prices higher, he said, is the underlying fear that a hurricane, a terrorist attack or some other uncontrollable event could stymie oil production and refining at a time when demand is strong and excess output capacity is limited.

While that nervousness helped push gasoline futures higher, Bentz said the market appears to have overreacted to Cindy’s impact. “We’re getting a little bit out of control,” he said.

Gasoline futures jumped 10.81 cents to $1.7899 per gallon, while heating oil futures climbed 6.24 cents to $1.7948 per gallon.

“Memories are still strong of the severe and lasting damage done along the U.S. Gulf Coast by Hurricane Ivan last autumn, and the fear is that another heavy season of tropical storms will batter this key producing region again this year,” said Energyintel analyst Tom Wallin in a research note.

Hurricane Ivan damaged some oil platforms in the Gulf of Mexico and caused others to shut down for months. Almost 44 million barrels of oil production was lost between September 2004 and February 2005, while natural gas output declined over the same period by 172 billion cubic feet.

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Associated Press Writer Edith Balazs in Budapest, Hungary contributed to this report.

AP-ES-07-06-05 1625EDT