US president George W Bush yesterday ordered the release of crude oil from the United States' strategic reserves as the White House sought to prevent the spike in global energy prices caused by Hurricane Katrina damaging the world's biggest economy.
Amid fears that oil prices could continue rising to $80 (€64) or $100 a barrel, triggering a 1970s-style economic crisis, Mr Bush said he would boost supply.
The White House said last night that it expected the long-term effects of the hurricane to be small unless higher oil prices derailed the economy. Preliminary estimates by insurers put the cost of the damage at at least $30 billion, although the figure may rise.
Mr Bush's decision made only a marginal dent in oil prices because the problem in the US in recent months has been a lack of refining capacity to turn crude oil into petrol and diesel.
While the price of crude edged back to just below $70 yesterday, wholesale petrol prices were up 20 cents a gallon to a record $2.68 in response to the shutdown of nine refineries on the Gulf coast.
"It is now appropriate to talk of a major energy crisis after Hurricane Katrina pushed US energy markets beyond the edge," Barclays Capital said in a report.
The Mississippi River basin is home to a 10th of the country's oil refineries, churning out 1.8 million barrels a day, as well as to ports that handle large imports of grain and fruits and warehouses that stock a quarter of US coffee supply. Preliminary estimates suggest the destruction will cost $15-$20 billion, but some analysts predict as much as $40 billion due to the region's oil industry.
"Crude is not the problem," said Deborah White at SG Commodities. "The heart of the problem is how much refining capacity we have lost." While the worst hurricane on US record books, Andrew in 1992, ploughed through residential areas in Florida, Katrina has hit an energy and commerce artery.
As the region recovers from the impact of the storm, much attention will be focused on the oil rigs and pipelines.
Barclays Capital estimates 20-40 million barrels of refined oil could have fallen prey to the storm's wrath, but no one has been able to penetrate the flood waters to asses the impact on the pipelines. If the damage is worse than expected, it could push crude oil prices to beyond the 1980s oil spikes from the Iranian revolution.
