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Oil Prices Rise on Rita

The Category 5 storm churns west into the Gulf of Mexico.
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Updated from 3:52 p.m. EDT

Crude futures jumped Wednesday as a strengthening Hurricane Rita set a course through the Gulf of Mexico toward the refinery-rich Texas coastline.

The newly benchmarked November crude contract closed up 60 cents to $66.80 a barrel on Nymex, erasing most of Tuesday's decline. Gasoline futures closed up about 7.7 cents to $2.05 a gallon.

Crude prices pulled back from above $68 a barrel after the Energy Department issued its weekly report on U.S. energy inventories. The data showed a smaller-than-expected decline in crude stocks of 323,000 barrels and an unexpected gain in gasoline inventories of 3.5 million barrels. Inventories of distillate fuels like heating oil also rose.

Still, concerns about the storm -- which was upgraded to Category 5 status Wednesday afternoon -- dominated trader psychology.

Weather updates "are going to grab the market for the next two or three days," said James Williams, energy economist at WTRG Economics. "The further west from the current path, the less impact (Rita) will have on the industry. Even if there is a direct hit on Houston, it will not have the same impact as Hurricane Katrina had on Louisiana since Houston is on a little higher ground."

Crude prices peaked at $70.85 a barrel in the immediate aftermath of Hurricane Katrina, which struck the Louisiana and Mississippi coast on Aug. 29.

In its last update, the National Hurricane Center said Rita's eye was about 600 miles east-southeast of Galveston Texas and about 700 miles east-southeast of Corpus Christi, Texas. Maximum sustained surface winds are 165 mph with higher gusts.

The likeliest landfall remains this weekend in Texas. Galveston, Texas, has ordered a mandatory evacuation starting at 6 p.m. local time. Three days out, however, the storm's mainland destination remains uncertain, and could be anywhere from Mexico to Louisiana.

"It's just too early to tell," Williams added. "Weather forecasting is the only thing that can make an economist look good."

Mary Novak, managing director of energy services at Global Insight Inc., warned about the potential damage to production facilities.

"Over the last 10 years we have become more dependent on off-shore production of oil and natural gas as on-shore reserves have declined," she said. "So now storms pose a greater threat to U.S. oil and gas production."

Novak speculated that that while the storm's impact on crude oil prices could be temporary, its effect on petroleum byproducts could be greater. She noted that after Hurricane Katrina, the price of crude oil rose to just above $70 per barrel, while the price of gasoline jumped to more than $105 a barrel.

The normal spread between crude and gasoline is $5-$7, she said.

Also on Tuesday, the U.S. Minerals Management Service said that

Natural gas prices also surged in the face of Hurricane Rita. At one point during the day gas for October delivery reached $13.24 per million British thermal units, the highest since the futures began trading in 1990, according to

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As of Tuesday, 138 Gulf of Mexico oil platforms remain out of service -- either in Katrina's wake or Rita's path. Companies including












have begun removing workers from threatened facilities.

The Amex Oil Index was recently up roughly 0.24%, while the Philadelphia Oil Service Index rose about 0.01%.

In company news, shares of



were off more than 11% on news that the Bank of New York was questioning the San Jose, Calif.-based company's use of the proceeds from its natural gas asset sale to acquire natural gas. Shares of Calpine were down about 34 cents to $2.69.

Southwestern Energy


said Tuesday that it completed a public stock offering that raised $580 million. Shares of Southwestern were down 51 cents to $65.50.

FMC Technologies


said it sold 2.6 million shares of the Tokyo-based company, Modec and raised about $74 million from the sale. The Houston-based company said it will see an after-tax gain of about 22 cents per share in the third quarter. Shares of FMC were up 21 cents to $40.21.