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Oil prices surge to $61.28 a barrel

Tropical Storm Cindy is blamed for the increase, which is expected to push retail gas prices higher.

WASHINGTON - 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.

In reaction, stocks tumbled on the Dow Jones Industrials, dropping more than 101 points.

Oil closed above $61 per barrel for the first time as investors worried that Tropical Storm Cindy would hurt production in the Gulf of Mexico and refinery capacity along the coast. A barrel of light crude settled at $61.28, up $1.69, on the New York Mercantile Exchange.

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.

While the rapidly weakening storm Cindy moved inland, Tropical Storm Dennis was expected to make its way into the Gulf this weekend and 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.

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 and February, while natural gas output declined over the same period by 172-billion cubic feet.

On Wall Street, anxiety over oil and the storm season depressed stocks.

The Standard & Poor's 500 index was down 10.05, or 0.83 percent, at 1,194.94, and the Nasdaq composite index lost 10.10, or 0.49 percent, to 2,068.65.

Bonds gained ground after a strong selloff in the previous session. The yield on the 10-year Treasury note fell to 4.07 percent from 4.10 percent late Tuesday.

But despite Wednesday's market losses, analysts said bigger problems may lie ahead for the economy.

"The thing here is that crude oil prices at $60 just isn't new anymore," said Chris Johnson, manager of quantitative analysis at Schaeffer's Investment Research in Cincinnati. "The longer it stays up here, the more the market gets used to it. Now, when we see second-quarter earnings, and we're getting some grumblings about oil affecting the bottom line, that'll be a true test."

[Last modified July 7, 2005, 01:00:11]