Oil scrambled back towards fresh highs above $70 on Wednesday as dealers feared a sharp squeeze on fuel supplies after Hurricane Katrina shut down vital U.S. Gulf Coast refineries and production platforms. Katrina, one of the most powerful hurricanes in U.S. history, forced operators to close more than a tenth of the country's refining capacity and a quarter of its oil output, spurring a frenzied spike in gasoline and heating oil prices. U.S. crude rallied to a record $70.85 a barrel on Tuesday before closing lower. It was trading up 65 cents at $70.46 on Wednesday as a mixed outlook emerged from the various companies making preliminary damage assessments after Katrina. London Brent crude rose 48 cents to $68.05 a barrel. Prices may surge further if the storm -- feared to have killed hundreds along the coast -- leaves permanent damage. It took half a year to fully restore output after last September's weaker Hurricane Ivan, which followed a similar path. "Is $80 possible? Sure," said Jim Ritterbusch of Ritterbusch and Associates. "We're going to see huge price swings." Gasoline prices which jumped an exceptional 20 percent a day ago, were trading up 7.55 cents, or 3.05 percent, at $2.55 a gallon, setting their third successive record high. Gasoline has led the market's rally as traders fear it will be far harder to make up for any lost fuel than for crude, especially if any of the nine refineries now idled are damaged. Stockpiles of the auto fuel are already unusually low and refiners have been working flat out to meet strong demand, which has yet to be substantially slowed by record costs. With the peak of hurricane season looming next month, some analysts fear more storms could herald a surge in crude prices towards $80 a barrel, comparable only to the period after the Iranian revolution in 1980, when adjusted for inflation. "We're dealing with the short-term supply shock now, although there are still further risks as the hurricane season continues," said Justin Smirk, senior economist at Westpac. Heating oil futures also traded up to a new peak at $2.01 per gallon, up 1.16 percent on the day. With 95 percent, or over 1.4 million barrels per day (bpd), of crude production -- about 7 percent of domestic demand -- still shut the day after Katrina tore through the Gulf, dealers were nervously interpreting the mixed outlook of damage reports. Royal Dutch Shell said an aerial inspection of its giant Mars oil and gas platform indicated some damage to its upper deck. Two of its drilling rigs were adrift. At least six other drilling companies, including Ensco and Transocean , reported rigs adrift after the storm, raising the prospect that dragging anchors or moorings might tear apart vital sub-sea pipelines. Newfield Exploration Co said it had lost one of its production platforms in the eastern Gulf. On the refining side, a U.S. senator who flew over southeastern Louisiana on Tuesday said three facilities belonging to Murphy Oil and Exxon Mobil Corp. were all "under water". Flooding is a serious risk for refineries. Valero Energy Corp. said its 250,000-bpd refinery near New Orleans did not incur serious damage and should be operating again in two weeks. A total of nine refineries were shut down and four more were running at reduced rates. There was some good news from offshore operators, as Kerr McGee resumed oil and natural gas production at two facilities in the western U.S. Gulf, while BP and Marathon Oil said early assessments showed no damage. The Louisiana Offshore Oil Port, which handles a tenth of U.S. crude imports, said initial damage reports were encouraging and it hoped to begin shipments on Thursday. OPEC and its biggest producer, Saudi Arabia, were quick to say they were ready to sell more crude to restrain prices, but potential buyers said additional supplies of heavy, hard-to-process Saudi oil would not ease the shortage in high-quality consumer fuels driving prices.Oil traders took little comfort in signs that the U.S. Department of Energy was likely to authorise loans from the 700-million-barrel strategic oil reserves, as requested by one refiner. It loaned out 5.4 million barrels after Ivan. The Paris-based International Energy Agency, gatekeeper to the world's emergency reserves, said on Tuesday it could release crude or fuel from its nearly 1.5 billion barrel stocks, but was awaiting further assessments before making a decision. Better news emerged from Ecuador, where leaders of two Amazon oil-producing provinces reached an agreement with foreign oil companies to formally end protests that crippled the Andean nation's crude exports earlier this month.