Oil industry roiling; gas price spike expected

Hurricane Katrina disrupted Gulf Coast petroleum output and rattled energy markets on Monday, sending oil and natural gas prices soaring and raising fears of $3-a-gallon gas, short-term shortages and economic uncertainty.

"Our bet is that the impact, if there is a lot of damage, will get us $3-per-gallon gas in three weeks," said John Silvia, chief economist for Wachovia Securities. Gas prices last hit $3 — in current dollars — in March 1981.

Whether Katrina soaks consumers for a few days, a few weeks or even months depends on what on Monday was an unknown: how much damage the storm has done to the oil industry.

By the end of the day, more than 700 offshore platforms and rigs had been evacuated, two rigs had drifted away and authorities in Alabama were forced to close a bridge over the Mobile River after it was struck by a runaway platform. Oil futures briefly climbed above $70 a barrel for the first time.

The powerful hurricane roiled the industry at a time when producers worldwide were already struggling to keep up with strong demand, and it threatened to constrain the supply of home heating fuels this winter. The rise in energy prices has already slowed the U.S. economy's growth rate, though domestic fuel consumption is still rising.

Higher gas prices are certain to fuel concerns that consumers will cut back on other spending. Since consumer spending accounts for most of the U.S. economy, any serious retreat could trigger a recession.

Nearly all the recessions of the past four decades came after spikes in oil prices, said Bernard Baumohl, executive director of the Princeton, N.J.-based Economic Outlook Group. "There is a real sense of foreboding about the economy now," he said. "This storm will be the most devastating ever for the U.S. oil and refining industries."

The Bush administration said it would consider lending oil from the nation's emergency stockpile to refiners that request it — Citgo Petroleum Corp. asked for 250,000-500,000 barrels to ensure its Lake Charles, La., refinery does not run out — and the president of OPEC said he will propose a production increase of 500,000 barrels a day at the cartel's meeting next month.

Lawrence J. Goldstein, president of the New York-based nonprofit Petroleum Industry Research Foundation, estimated that total refinery production of gasoline, heating oil, diesel and other fuels could fall by as much as 20 million barrels over the next 60 days.