Oil eased from record highs above $70 on Wednesday after the United States temporarily eased environmental fuel regulations and offered to loan crude to refiners to prevent shortages after Hurricane Katrina ripped through the Gulf of Mexico.
US crude settled down 87 cents at $68.94 as dealers said Washington's gestures could offer some mild relief from the effects of Katrina, which paralysed oil production from the Gulf of Mexico and closed more than 10 percent of US refining capacity.
But other 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 Tuesday may not have run its course.
"It is now appropriate to talk of a major energy crisis after Hurricane Katrina pushed US energy markets beyond the edge," said Barclays Capital in a report.
London Brent crude slipped 55 cents to $67.02 a barrel, after dropping as low as $65.64.
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. Similarly a fresh pledge from oil cartel Opec to open crude taps as much as necessary was unlikely to satisfy a market hungry for oil products.
"Crude is not the problem," said Deborah White, senior energy analyst at SG Commodities. "The heart of the problem is how much refining capacity we have lost."
The US government said Wednesday it would ease environmental standards of gasoline and diesel nation-wide for two weeks to avert a crunch and ease skyrocketing prices, but analysts were sceptical the gestures would help.
"In the short term, their effect will be mostly symbolic, and the price relief will accordingly be largely muted," said Antione Halff, energy analyst at Eurasia Group. "Further price rises are likely and will impact producer and consumer countries around the world in contrasting ways."
Gasoline futures on the NYMEX settled up 14 cents to $2.6145 a gallon, a record. Energy experts said the spike in gasoline futures prices of nearly a dollar since last week will mean huge increases at the pumps in coming days.
Oil companies on Wednesday struggled to assess if it would take days, weeks or months to recover from Hurricane Katrina, as inspectors waded across flooded refineries and helicopters passed over wounded drilling rigs.
Katrina, one of the most powerful hurricanes in US history, has forced operators to cut more than 6 million barrels of crude oil production so far, along with about 6 million barrels of fuel output from refineries on the coast.
Barclays Capital estimates between 20 million and 40 million barrels of refinery throughput could be lost, with 14 million to 28 million barrels of gasoline affected.
"Oil products that were looking in ample supply, (eg heating oil), will tighten significantly, and those that were already tight, (and most especially gasoline), face further severe upwards price pressure," the Barclays report said.
"This storm alone I don't think is capable of forcing $4 gasoline, but if we have another severe storm in the next couple of weeks or so, that's a possibility," said Jim Ritterbusch of Ritterbusch and Associates. "We have a tight situation here."
Opec and its biggest producer, Saudi Arabia, have been 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.
Germany showed little mercy toward the world's biggest oil consumer, blaming the United States for its insufficient refining capacity.
Economy Minister Wolfgang Clement said the damage to US refining capacity caused by Katrina could lead American firms to buy more oil in Europe, which could further inflate prices.
"On this I must say the United States has had insufficient refining capacity for a long time, and this is presumably now impaired, so the situation is coming to a head," he said.
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