Oil prices jumped to another record and natural gas prices soared Tuesday on worries that production troubles caused by Hurricane Ivan would keep supplies tight and boost winter heating bills.
In the Gulf Coast region, where Ivan last month closed ports and damaged drilling rigs and pipelines, crude oil production remained 27% below normal Tuesday, while natural gas production was down 14%, according to government figures.
"After the storm, there was kind of a false sense of security that there wasn't that much damage to production," said Phil Flynn, senior market analyst at Chicago's Alaron Trading Corp. "Now it's becoming apparent that it was affected more than people had anticipated."
Oil for November delivery climbed $1.18 a barrel to $51.09 on the New York Mercantile Exchange.
Market watchers have made something of a sport out of guessing how expensive oil might get, with some believing prices have been pumped up by speculators.
"I think it's a little crazy, but that doesn't mean that it can't get a little higher," said Gene Edwards, senior vice president of supply, trading and wholesale marketing at San Antonio-based Valero Energy Corp.
Heating oil, a key wintertime commodity in the East, rose 2.12 cents to a record $1.4068 a gallon in New York. And natural gas for November delivery rose 43.9 cents on the Nymex to $7.164 per million British thermal units, up 52% since Ivan made landfall in mid-September.
California's natural gas prices increased 49 cents to an average of $5.27 per million BTUs paid at border delivery points.
"The concern here is that this is a time of year when you should be building supplies for winter," said Flynn at Alaron.
Southern California Gas said Tuesday that higher natural gas costs could push residents' wintertime monthly bills 16% to 22% higher than they were last year. The company, a subsidiary of Sempra Energy, serves 18 million customers from San Luis Obispo to the Mexican border.
"It's still early in the season ... but we believe we'll see winter gas commodity prices in the $6-to-$6.50 range per million BTU," spokeswoman Denise King said.
Although the company's gas storage levels are healthy, market prices could raise the typical residential bill to $78 to $82 a month this winter, up from $67 a month last winter, King said.
Bigger stockpiles nationwide remain the key to lower prices, analysts said.
Inventories must rise "in order for people to get comfortable that there's a cushion," said Andy Lipow, president of Lipow Oil Associates, a Houston consulting firm. "We keep waiting for inventories to build, and they don't."
Unrest in Nigeria, the political fight that hangs over a major Russian oil company and Iraq's chronic instability have all threatened to keep worldwide production in check even as other major oil producers try to keep up with soaring demand from China and the U.S.
Some believe government inventory figures to be released today will determine which way commodity prices head going into winter.
"Everyone in the world is really going to key in on that data," Flynn said of the government report.
"We'll find out if the concern that we've seen in the last few days is justified."
Bloomberg News was used in compiling this report.