Another hurricane threat

Sam Fletcher
Senior Writer

Having just returned to full production after Hurricane Dean, Petroleos Mexicanos again faced a possible decision Sept. 3 whether to evacuate offshore rigs and platforms in the Bay of Campeche as another category 5 storm, Hurricane Felix, churned through the Caribbean.

Felix developed quickly with a much stronger than anticipated pattern, reaching category 5 even before it entered Caribbean waters. Dean also was a category 5 that weakened as it crossed land and entered the Gulf of Mexico. Nevertheless, it forced Pemex to shut down 140 offshore units and move 1,300 workers to land.

At one point, a weather model at the US National Hurricane Center showed Felix possibly passing over the Yucatan Peninsula to enter the Bay of Campeche—where 66% of Pemex's oil production is located—not far from Dean's previous track. "None of the models show it going straight towards the US Gulf but rather through the Yucatan (as did Dean) or Central America," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland.

Hurricane Felix later was downgraded to category 4 with sustained winds of 135 mph. Meteorologists said it could fluctuate between the two categories until hitting the mainland. There was no indication Sept. 3 that Pemex was evacuating any workers or shutting down any production as Felix's track appeared to move south toward the Central American coast. Hurricane alerts were issued for Nicaragua, Guatemala, and Belize.

However, traders expected Felix to remain a major market force through the rest of the week. They also expected production losses as a result of Hurricane Dean to show up in Sept. 6 reports of US imports.

Oil futures prices rose Sept. 3 in international markets as traders tracked potentially destructive storms that could hit the Gulf of Mexico region. But with US financial markets closed for the Labor Day holiday, trading was sluggish. That holiday marked the end of the US summer driving season, after which gasoline demand historically declines.

US inventories
The Energy Information Administration reported commercial US crude inventories fell 3.5 million bbl to 333.6 million bbl during the week ended Aug. 24. That surpassed the consensus expectation of a 600,000 bbl draw. US gasoline stocks dropped 3.6 million bbl to 192.6 million bbl in the same period, vs. a consensus draw of 2.5 million bbl; gasoline supply is well below average for this time of year with declines in both finished gasoline and gasoline blending components. Distillate fuel inventories increased 900,000 bbl to 129.9 million bbl, slightly more than the consensus build of 800,000 bbl. US refinery utilization fell to 90.3% during the same week from 91.6% the prior week.

"Gasoline inventories fell by 4.7 million bbl east of the Rockies and hit their lowest absolute level since the 2005 hurricanes," said Paul Horsnell at Barclays Capital Inc., London. "In terms of days of forward cover, they are even tighter than that." US gasoline supplies were then 8.2% below year-ago levels, having fallen 12.1 million bbl in 4 weeks.

"The large gasoline draw has left stockpiles at the lowest level since 1991, when the government began collecting this data," said analysts in the Houston office of Raymond James & Associates Inc.

However, Jakob at Petromatrix said half of the Aug. 24 draw of crude occurred in "discounted" Petroleum Administration for Defense District 5 (PADD 5) for Hawaii, Alaska, and the West Coast of the continental US. In the other four PADDs, Jakob said, "Overall US crude stocks remain at multiyear highs for the period, both in absolute terms and in days of forward cover but with a balance which remains underweight in PADD 2 [the Midwest] and overweight in PADD 3 [the Gulf Coast]; and this continues to prevent significant pressure to develop on the front West Texas Intermediate time spreads."

Natural gas outlook
EIA reported the injection of 43 bcf of natural gas into US underground storage during the week ended Aug. 24. That compared with injections of 23 bcf the previous week and 48 bcf during the same period last year. That put total US gas storage at 2.969 tcf, up 71 bcf from year-ago levels and 315 bcf above the 5-year average.

"If we have the same injection each week for the remaining 10 weeks left in storage injection season, inventories would surpass 3.4 tcf in November, which would be close to the record high of 3.461 [tcf] reached on Oct. 20, 2006. It would take injections of 53 bcf to get storage to 3.5 tcf," said analysts at the Société Générale Group in Paris.

(Online Sept. 4, 2007; author's e-mail:

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