Oil prices fell yesterday after the US government offered to loan crude from its reserve to replace output lost when Hurricane Katrina ripped through the Gulf of Mexico, sinking at least 20 oil rigs.
The move came as Opec, the producers' cartel, said it stood ready to pump extra oil to offset shortages from the scores of facilities put out of action by the storm.
In New York, prices fell 87 cents to end at $68.94 while London Brent crude firmed 10 cents to $67.67 a barrel, after dropping as low as $65.99. It hit a peak of $70.85 on Tuesday. Prices had risen close to record levels after it emerged 95 per cent of production in the region had been halted. Royal Dutch Shell said its Mars platform, which pumps 15 per cent of gulf oil output, was damaged, while the Louisana coast guard said at least 20 oil rigs had sunk or were missing.
The Energy Department said it had received three formal requests from US refiners for emergency oil loans and had already approved one. It said six more refiners had enquired about oil loans, but had not submitted formal requests.
Ben Bernanke, the White House's economic adviser, said the effect on the energy sector would be temporary. "There are some petroleum refineries that don't have crude and by allowing them to draw from the Strategic Petroleum Reserve they will be able to produce more gasoline," he said.
Mr Bernanke, who is seen as a leading candidate to succeed Alan Greenspan as chairman of the Federal Reserve, played down the impact on the economy. "As long as we find that the energy impact is only temporary ... my guess is that the effects on the overall economy will be fairly modest."
He said the reaction of the bond market to push interest rates lower indicated the main impact would be slower growth rather than higher inflation. "I think that is a vote of confidence in the Federal Reserve," he said. "People are confident that inflation will be low despite these shocks to gasoline and oil prices."
Analysts warned that the respite in oil prices could be short-lived. "This move will not solve the real problem - the oil cannot be refined," Dominic Bryant, at BNP Paribas, said. "Even before the loss of 1.8 million barrels per day of output refineries were struggling to keep up with demand. So increasing the crude supply will not overcome this bottleneck."
Nine refineries with a combined capacity of nearly 2 million bpd were shut and four more were running at reduced rates. Barclays Capital estimates between 20 and 40 million barrels of refinery throughput could be lost.Reuse content