Hurricane expected to fuel more spikes in energy prices

Hurricane Katrina could make a bad energy situation worse, as the shutdown of much of the energy production capacities in the Gulf of Mexico sent fuel prices surging higher.

Of particular concern is Katrina's impact on natural gas. Yesterday the price of a near-term futures contract for natural gas rose 10.8 percent, compared with a rise in gasoline futures of 6.9 percent and a rise in heating oil futures of 3.9 percent.

Futures prices represent investor sentiment of how consumer prices will change in the short term. On the New York Mercantile Exchange, crude oil prices closed yesterday at $67.20 a barrel, 1.6 percent above Friday's close. Energy prices have been steadily rising for most of the year, partly because of increased demand from China and India.

Because of the hurricane, much of the oil-refining capacity and much of the natural gas production have been suspended in the Gulf of Mexico, said Zoltan Pozsar, an economist with the forecasting firm Economy.com. The Gulf area accounts for 20 percent of US natural gas output, he added.

Nariman Behravesh, chief economist at the forecasting firm Global Insight, said his best-case scenario put crude oil prices at $65 to $70 a barrel for a few weeks and gasoline prices of $3 a gallon for a few months. His worst-case scenario: Gas prices of $3.50, oil prices briefly at $100 a barrel, and an economy closer to a recession by the fourth quarter.

''The energy market is as tight as a drum," he said. ''We're vulnerable to even the smallest supply disruptions."

''Natural gas is the real worry," Bill O'Grady, an assistant director of market analysis at A.G. Edwards & Sons, told Bloomberg News. ''Unfortunately, we can't import the missing production."

According to Tim Shevlin, executive director of the state's Department of Telecommunications and Energy, there are 1.4 million natural gas customers in Massachusetts.

How long refineries and natural gas facilities remain off-line depends on how much damage they sustain.

Another ''wild card" is whether President Bush will authorize a loan of some oil from the nation's Strategic Petroleum Reserve, said Scott Anderson, senior economist at Wells Fargo Economics.

Administration officials, speaking on the condition of anonymity because they were not authorized to speak publicly, said Bush seemed likely to authorize a loan of some oil from the reserve but that details remained in flux. Last year, the president authorized loans from the reserve to help refiners make up for missing supplies after Hurricane Ivan.

Pozsar, in a report yesterday, wrote, ''Seventy-dollar-per-barrel could become the new floor for oil prices, which will hurt consumer, business and investor confidence."

But he added, ''Katrina and $70-plus oil will not push the economy into recession"; rebuilding homes and facilities damaged by the hurricane could give the economy a fourth-quarter boost.

Even before Hurricane Katrina, gasoline prices already were rising. According to the American Automobile Association, the current average price for an unleaded gallon of regular gas in Massachusetts is $2.61, up from $2.38 a month ago.

Even if the hurricane causes little damage to oil refineries, the price of gas is unlikely to fall quickly.

''Historically, it goes up fast and comes down slow," said Art Kinsman, a spokesman for AAA's Southern New England chapter.

Kinsman noted that Labor Day is one of the most popular vacation weekends of the year. As a result, demand for gas should be high in the next week, and high demand can translate into higher prices.

But during the summer, there's little demand for home heating oil, said David O'Connor, commissioner of the state's Division of Energy Resources.

''This hurricane is happening early enough and far away enough from New England that it may not have any lasting effect on prices," he said.

One factor that can affect heating oil prices is the severity of winter, added Michael Ferrante, president of the Massachusetts Oilheat Council, a business association of heating-oil companies.

Last week, before anyone was paying much attention to Hurricane Katrina, Secretary of State William F. Galvin issued a report noting that many analysts were expecting home heating oil to cost 20 percent more this winter in the Northeast.

He said the increase in natural gas prices could be ''well over 30 percent."

Yesterday Bob Porter, vice president of New England sales for Direct Energy, which helps businesses manage natural gas and electricity expenses, said of natural gas, ''I would say a 30 percent increase is a conservative view right now."

Chris Reidy can be reached at reidy@globe.com. Material from Globe wire services was used in this report.