Oil eased from record highs above $70 this afternoon after the US offered to loan crude to replace output lost when Hurricane Katrina ripped through the Gulf of Mexico. But Washington's gesture fails to address the country's petrol shortage.
And energy experts, warning of a supply shock on the scale of the 1970s, said a two-year bull run that took oil to $70.85 yesterday may not have run its course.
US crude was off 11 cents at $69.70 this afternoon, having slipped to $68.91 after the loan from the Strategic Petroleum Reserve (SPR) was announced. London Brent crude slipped a cent to $67.56 a barrel, after dropping to $65.99.
Prices may yet rebound since the loan of crude from the 700-million-barrel strategic stockpile will do little to ease a US refining crunch.
Katrina, one of the most powerful hurricanes in US history, forced operators to close more than a tenth of the country's refining capacity and a quarter of its crude oil output, spurring a spike in petrol and heating oil prices.
Over 1.4 million barrels per day (bpd) of crude production - about 7% of domestic demand - were still shut the day after Katrina tore through the Gulf. Nine refineries with combined capacity of nearly two million bpd were shut down and four more were running at reduced rates.
Barclays Capital estimates between 20 million to 40 million barrels of refinery throughput could be lost, with 14 million to 28 million barrels of petrol affected.
Petrol has led the market's rally as traders fear it will be far harder to make up for any lost fuel than for crude, especially if any of the refineries now idled are damaged.
Weekly oil inventory data released by the US government today showed the country's refiners cranking up just ahead of Hurricane Katrina. Petrol stocks fell by 500,000 barrels, much less than the forecast of 1.2 million barrels, according to a poll of analysts. But the potential remained for petrol to spike.
OPEC and its biggest producer, Saudi Arabia, were quick to say they would sell more crude to restrain prices, but buyers said extra heavy, hard-to-process Saudi oil would not ease the shortage of high-quality consumer fuels driving prices.
