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WSJ: Storm Jolts Energy Markets As U.S. Output Takes Blow. [$]

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Houston-based Citgo Petroleum Corp., owned by Petroleos de Venezuela SA, says it needs 500,000 barrels of crude oil from the Strategic Petroleum Reserve to keep its Lake Charles, La., refinery operational.

"The request was made to ensure the refinery operates normally," says Citgo spokesman Fernando Garay. The facility -- located 200 miles west of New Orleans and far from the brunt of Katrina -- is having trouble getting enough oil to run through its refinery, said Mr. Garay. He said the shut down of two major oil pipelines, including one that connects to the Louisiana Offshore Oil Port, is the problem.

In recent years, new and hugely expensive exploration and production projects have turned the gulf's waters into a crucial source of critically needed oil and gas -- and a potential choke point when a major hurricane spins through. Energy markets depend on continuous production from the gulf -- there's simply not enough inventory to keep the oil sector going for more than 10 days without new feeds of crude oil and gas.

Katrina's potential body blow to the industry comes as global crude-oil prices already have surged in recent weeks on concerns that spare crude production capacity is so thin that any disruption could drive prices up. "You've only got 1.5 million barrels a day of spare capacity in the world and it's gone," says Paul Sankey, an energy analyst for Deutsche Bank.

Much of the anxiety was because hurricane damage is often so unpredictable and difficult to assess quickly. When Hurricane Ivan, a slightly weaker storm, passed slightly to the east of the heart of offshore production last September, initial reports were encouraging. But the hurricane triggered hundreds of underwater mudslides that wreaked havoc on the pipeline system and took months to repair. Chevron Corp.'s Petronius, a $500 million platform tower that is taller than the proposed Freedom Tower in New York, appeared to suffer minimal damage from a helicopter pad that smashed into its sleeping quarters. But the tower wasn't running until March, nearly six months after the storm.