Oil struck a high near $71 on Tuesday as oil companies raced to check their abandoned oil platforms and refineries for damage after Hurricane Katrina's rampage through the Gulf of Mexico. US crude hit a record $70.85 a barrel before settling at $69.81, up $2.61 a barrel, amid reports of drifting oil rigs and flooded refineries.
The storm, which killed at least 50 people, shut nearly all of the Gulf of Mexico's oil production - about a quarter of the nation's oil output - and closed down nine refineries along the coast, according to government figures.
Energy analysts said oil prices could soar as high as $80 a barrel and drivers in the US could soon be paying $3 a gallon for gasoline if damage reports from oil companies bear bad news.
"This in many ways is the worst-case scenario that the oil industry has been fearing," said Geoff Sundstrom, spokesman for the AAA motorist group. "Production, distribution and refining has slowed to a crawl through the whole area."
"It's not out of the question that $80 could be the next barrier if there's long-term damage," said Gerard Burg, minerals and energy economist at National Australia Bank.
The last time oil prices, adjusted for inflation, averaged $80 a barrel was 1980, after the Iranian revolution.
Heating oil and gasoline futures also reached peaks on the New York Mercantile Exchange, spelling more misery for consumers leading into the Northern Hemisphere winter. Gasoline trading on the NYMEX was halted briefly after the contract gained the maximum allowed.
"Fasten your seat belt - peak hurricane season isn't until mid-September through mid-October, and we've had two hurricanes hit the Gulf Coast already," said Deborah White, senior energy analyst at SG Commodities in Paris.
Opec's biggest crude oil producer, Saudi Arabia, moved swiftly to pledge an extra 1.5 million barrels per day (bpd) of oil to the market if needed and the United States said it would dip into its strategic reserves if necessary.
The Paris-based International Energy Agency said Tuesday it could release crude or fuel from its emergency reserves if the impact of Katrina causes a severe crunch.
"Nothing can be decided at this moment until a full assessment of the damage has been made," an IEA spokesman said.
Royal Dutch Shell said an aerial inspection of its giant Mars oil platform indicated some damage to its upper deck. Two of the company's drilling rigs were adrift.
Some 95 percent of the Gulf of Mexico's oil output and more than 88 percent of natural gas production were shut as of Tuesday, the US Minerals Management Service said.
That closed down 1.4 million bpd of crude, roughly 7 percent of US domestic demand and about the same amount as the estimated spare capacity held of Opec.
Since Katrina first entered the Gulf it has shut more than 3 million barrels of crude output.
The storm also forced nine refineries in Louisiana and Mississippi to shut down and four others to reduce operations, disabling more than 10 percent of US refining capacity.
Several drilling companies, including Ensco, Transocean, and Noble, reported rigs adrift after the storm.
"Drifting rigs are an ominous sign for an already panicky market since moorings and anchors can potentially be dragged by drifting facilities and do damage to subsea pipes," said analysts at J.P. Morgan.
The United States maintains a small government heating oil stockpile in the north-east but otherwise has limited ability to quickly meet sudden fuel shortfalls.
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