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Oil fell below $67 Tuesday after surging 7 percent the previous session as a fresh storm headed towards the Gulf of Mexico, threatening more supply disruptions less than a month after Hurricane Katrina.
The International Energy Agency (IEA) said it would consider extending its 30-day oil rescue plan to the U.S. if Hurricane Rita, which gained hurricane status around 9:15 a.m. on Tuesday, causes major disruptions to supplies. Rita is currently making its way over southern Florida and the Keys before moving into the Gulf of Mexico.
U.S. light crude traded down $1.20 at $66.19 a barrel, after surging $4.39 Monday. Light crude hit a record $70.85 on Aug. 30, a day after Katrina struck. The contract fell 12 percent over the following two weeks after the IEA's decision at the beginning of the month to release 2 million barrels a day of crude and oil products to help the world's biggest consumer through an energy crisis.
Hurricane Rita is expected to strengthen over the warm waters of the Gulf of Mexico as it continues on a westerly path. The storm comes as U.S. crude oil facilities continue to recover from Katrina, with four refineries still closed and more than half of offshore Gulf of Mexico oil production shut in.
"It looks like she could have an impact on facilities that were untouched by Katrina," said David Thurtell, commodities strategist at the Commonwealth Bank of Australia in Sydney. "While we don't really know where she will go at present, it really is a case of kicking a man while he's down."
Storm forecasts showed Rita set to enter the Gulf of Mexico, which accounts for about a third of domestic oil production, then make landfall this weekend in Texas, home to about a quarter of the country's refining production.
Engineers repairing facilities damaged by Hurricane Katrina began to evacuate Monday as Rita threatened to derail the recovery plan. Shell Oil, Chevron Corp., PB and Marathon all evacuated rigs.
The threat to fuel supplies sent gasoline prices 14 percent higher Monday. Gasoline futures were down 7.07 cents at $1.9720 a gallon Tuesday. According to AAA, the national average for regular gasoline is $2.78, down two cents from $2.80 on Monday. This is compared to $1.85 a year ago. Still, AAA notes that gas prices are not yet reflecting pressures from Rita.
Gasoline prices have steadily retreated since Labor Day when prices peaked at $3.057 – nearly 27 cents below Monday's average. Pump prices surged after Hurricane Katrina slammed into the Gulf Coast three weeks ago.
AAA's "Daily Fuel Gauge Report" revealed that gasoline prices in Hawaii were the most expensive in the country, with the average cost of regular unleaded being $3.625. Gasoline prices in Oklahoma were the cheapest, with regular unleaded at $2.487 on average.