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Hurricane effects evident in industry data

Sam Fletcher
Senior Writer

Effects on the US oil industry of two major hurricanes in less than a month were evident in an Energy Information Administration report Oct. 5 that commercial stocks of US crude dipped by 300,000 bbl to 305.4 million bbl during the week ended Sept. 30, while gasoline inventories plunged by 4.3 million bbl to 195.5 million bbl. Distillate fuel inventories dropped 5.6 million bbl to 128 million bbl during the same period.

US crude imports fell by nearly 1.6 million b/d to 8.1 million b/d in the week ended Sept. 30. Crude input into US refineries plummeted by 2.9 million b/d to 11.7 million b/d, with refineries operating at 69.8% of capacity that week after many Gulf Coast facilities shut down in preparation for Hurricane Rita. "Gasoline and distillate fuel production declined dramatically," said EIA.

Yet crude futures prices dropped for 5 days before recovering slightly Oct. 7 on the New York Mercantile Exchange because of traders' fears of faltering fuel consumption despite sluggish recovery of oil and natural gas production from the Gulf of Mexico. The October contract for benchmark US light, sweet crudes closed at a 22-year high of $70.85/bbl on Aug. 30 in the wake of Hurricane Katrina. By Oct. 6, the November contract was down to $61.36/bbl, a 2-month low for a front-month contract, before rebounding to $61.84/bbl Oct. 7. The natural gas contract for November delivery settled at a new high of $14.20/MMbtu Sept. 29 on NYMEX, but by Oct. 7, it was down to $13.23/MMbtu.

Supply deficits
However, Paul Horsnell with Barclays Capital Inc., London, said, "The supply-side deficits in the US oil product market remain cavernous, with demand effects dwarfed by the size of the product gaps."

Cumulative loss of crude output to Katrina and Rita "is likely ultimately to extend beyond 100 million bbl," Horsnell said. "We now expect the cumulative level of forgone refinery output to close in on 200 million bbl, with the cumulative reduction in gasoline output alone now expected to stretch towards 100 million bbl. The hit to the supply side is very significant, including the lowest US crude oil production for over 60 years, very low refinery runs, and a [year-over-year] reduction of over 1 million b/d in gasoline output."

He concluded: "Given that toll of supply-side trouble, together with the even more alarming tightness in natural gas, one might then wonder as to why the fast money has been so quick to sell the energy complex. The reason is demand pessimism, based on some confusions about relative magnitudes and some overly downbeat views on the US economy. In reality, demand is not close to compensating for the supply-side deficits."

Production curtailed
The US Minerals Management Service said Oct. 7 that crews evacuated ahead of hurricanes in late August and September had not returned to 6 drilling rigs and 274 offshore platforms in the gulf. Shut-in production totaled 1.2 million b/d of oil, or 77.5% of normal output, and 6.4 bcfd of gas, or 64.4% of the usual production from those waters. Gulf production lost through Oct. 7 totaled 50.1 million bbl of crude and 246.5 bcf of natural gas.

In its survey of wells in 38 parishes, the Louisiana Office of Conservation said 535.7 MMcfd of gas production was restored onshore or in state waters, while 42.9% of the wells in that area were still shut in Oct. 7.

The Department of Energy said 20 natural gas processing plants with capacities equal to or greater than 100 MMcfd still were inactive. A number of plants with a cumulative capacity of 4.76 bcfd "are operational but are not active, owing to upstream or downstream infrastructure [problems] or supplies being unavailable," said DOE officials. DOE said eight Gulf Coast refineries were still shut down Oct. 7, including five idled by Rita and three knocked out by Katrina, a total 2.1 million b/d of refining capacity offline. That amounts to 900,000 b/d of gasoline, 500,000 b/d of distillate fuel, and 200,000 b/d of jet fuel not being produced.

"Although we believe that high retail gasoline prices are slowing demand (maybe not the full 0.9% total implied by the Department of Energy's past 4 weeks' inventory data), it is important to remember that September is generally one of the weakest months in terms of demand, and that consumption seasonally rises as temperatures fall in fourth quarter," said analysts at Friedman, Billings, Ramsey & Co. Inc., Arlington, Va., in an Oct. 5 report.

(Online Oct. 12, 2005; author's e-mail: samf@ogjonline.com)



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