Crude Oil, Gasoline Rise as Storm Heads for the Gulf of Mexico

Bloomberg
Sep. 19, 2005

Sept. 19 (Bloomberg) -- Crude oil and gasoline rose, as natural gas surged to an all-time high, on forecasts that Tropical Storm Rita will strengthen into a hurricane and disrupt production in the Gulf of Mexico.

Rita, which gained strength over the Bahamas as it headed toward southern Florida, may become a hurricane within a day and approach the Texas coast by Sept. 24. Hurricane Katrina last month caused the shutdown of eight oil refineries and forced at least 10 others to slow processing because of reduced oil supplies. Four refineries remain shut.

If the storm ``continues westward it will threaten the Houston Ship Channel and the many refineries along the Texas coast,'' said Marshall Steeves, an analyst at Refco Inc. in New York. ``We already have about 5 percent of refining capacity out indefinitely because of Katrina and can't afford to lose more.''

Crude oil, natural gas, gasoline and heating oil surged to records after Katrina made landfall. Crude oil touched $66.81 on the New York Mercantile Exchange, the highest since Sept. 6. Natural gas futures reached $12.58, the highest since the contract was introduced in 1990. The previous record of $12.30 was touched on Aug. 31.

The Organization of Petroleum Exporting Countries, meeting in Vienna today and tomorrow, is considering leaving output quotas unchanged and instead waiting for customers to demand extra oil before deciding to pump more, the group's president said. OPEC members are responsible for about 40 percent of world oil production.

Evacuations

Royal Dutch Shell Plc and Chevron Corp. have announced that they are pulling workers from platforms in the Gulf of Mexico. About 30 percent of U.S. oil production comes from offshore facilities in the Gulf, while the region accounts for 24 percent of the country's gas output.

Oil and natural-gas supplies from the Gulf will take three months to return to 90 percent of normal levels because of storm damage, the U.S. Minerals Management Service said on Sept. 16. The agency is part of the Interior Department and manages offshore resources.

Katrina, which hit the Gulf Coast Aug. 29, shut as much as 95 percent of U.S. oil and 88 percent of gas output as offshore platforms and coastal processing plants were evacuated. The MMS said that 56 percent of Gulf oil production was idle on Sept. 16, just 1 percentage point less than a week earlier. Natural- gas output was down by 34 percent.

Crude oil for October delivery jumped $3.35, or 5.3 percent, to $66.35 a barrel at 11:38 a.m. Futures have declined 6.4 percent since touching a record $70.85 a barrel on Aug. 30. Prices are 46 percent higher than a year ago.

Natural gas for October delivery surged $1.311, or 11.8 percent, to $12.455 per million British thermal units in New York. Prices have more than doubled in the past year.

Texas and Louisiana

Texas' 26 refineries have the capacity to process 4.6 million barrels of crude oil a day, or 26 percent of the U.S. total, according to the Energy Department. Most of the state's refineries are located along the coast in the Corpus Christi, Houston and Port Arthur areas. Louisiana is the second-biggest refining state.

Gasoline for October delivery jumped 17.49 cents, or 9.8 percent, to $1.96 a gallon. Gasoline reached $2.92 a gallon on Aug. 31, the highest since trading began in 1984. Futures are 54 percent higher than a year ago.

Regular-grade gasoline, averaged nationwide, plunged 8.2 cents to $2.805 a gallon Friday, according to data released today by the AAA, the nation's largest motoring organization. Prices have declined 8.2 percent since touching a record $3.057 on Sept. 2. Pump prices are 51 percent higher than a year ago.

Heating Bills

U.S. consumers can expect to pay at least $400 more for heating oil this winter compared with a year ago because of the shutdown of refineries. The cost to heat a typical home in the Northeast, where 80 percent of the nation's heating oil is used, may jump to $1,667, according to Mark Wolfe, executive director of the National Energy Assistance Directors' Association.

Heating oil for October delivery surged 16.05 cents, or 8.7 percent, to $1.9975 a gallon. Futures touched $2.21 on Sept. 1, the highest in 27 years of trading on the exchange. Heating oil is 58 percent higher than a year ago.

OPEC Meeting

Sheikh Ahmad Fahd al-Sabah, the OPEC president and Kuwaiti oil minister, told reporters in Vienna that the group has 2 million more barrels of oil capacity a day available for sale. The Libyan OPEC delegate, Fathi Shatwan, said OPEC shouldn't raise its current output limits of 28 million barrels a day because the market doesn't need more supply.

The oil minister for Saudi Arabia repeated an offer to operate at full production capacity to help meet rising oil demand and reiterated a proposal made last year to invest in new refineries in the U.S. Saudi Arabia is the world's biggest oil exporter and the most influential member of OPEC.

``I have given you the Saudi position in an official communique,'' the Saudi oil minister, Ali al-Naimi, told reporters in Vienna today. ``We have 11 million barrels a day of capacity. It is available to the market.''

Saudi Arabia is the only OPEC member with significant amounts of spare capacity, though most of the additional barrels are heavy, sour oil that many refineries are unable to process.

`OPEC's Irrelevant'

``OPEC's irrelevant insofar that they can't do anything to bring down prices,'' said Bill O'Grady, assistant director of market analysis at A.G. Edwards & Sons in St. Louis. ```If they had spare capacity they would have already been using it. They become relevant again if prices fall and they decide to cut back on output.''

Members of the International Energy Agency agreed on Sept. 2 to release as much as 1.28 million barrels a day of crude oil and 683,000 barrels a day of refined products for a month, half of it from the U.S. Strategic Petroleum Reserve, to help ease shortages

In London, the November Brent crude-oil futures contract rose $2.99, or 4.8 percent, to $64.80 a barrel on the International Petroleum Exchange. Prices touched $68.89 on Aug. 30, the highest since trading began in 1988.