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Crude tops record $80/bbl

Paula Dittrick
Senior Staff Writer

Sam Fletcher
Senior Writer

The front-month crude contract closed above $80/bbl for the first time in the history of the New York Mercantile Exchange Sept. 13 upon news that Hurricane Humberto had disrupted power to three refineries in Port Arthur, Tex.

In its third consecutive record settlement that week, the October contract for benchmark US light, sweet crudes increased 18¢ to $80.09 on the New York Mercantile Exchange. That contract hit an all-time high of $80.36/bbl in intraday trading Sept. 14 before profit-taking dropped the closing price to $79.10/bbl on NYMEX.

The record high closing came 3 days after ministers of the Organization of Petroleum Exporting Countries voted in Vienna to increase production by 500,000 b/d, effective Nov. 1. The agreement excludes production by Angola and Iraq and affects only the other 10 members. Saudi Arabia's crude production is still 400,000 b/d below the October 2006 level, but that is offset by Angola's production increases. Saudi Arabia, the UAE, and Kuwait supported the production increase while Venezuela, Algeria, and Libya resisted it.

Analysts in the Houston office of Raymond James & Associates Inc. called the boost "largely symbolic, aimed to calm a skittish market that is still assessing the full extent and fallout from the US credit-market meltdown." The 10 members subject to quotas are estimated to have produced 1 million b/d above the current ceiling during August.

Barclays Capital Inc. analyst Paul Horsnell in London said OPEC "probably should have increased by a tad more if there was a desire to keep the incursion above the $80/bbl reasonably limited." OPEC production already was expected to fall during November because of heavy field maintenance in the UAE. Maintenance slated for the giant Lower Zakum and Upper Zakum oil fields off Abu Dhabi could reduce output by 600,000 b/d for 2-3 weeks, Horsnell said. Additional reductions from Umm Shaif field off Abu Dhabi are likely to bring the peak reduction total up to 800,000 b/d.

"In all, an increase in output of 500,000 b/d from the rest of the OPEC 10 would do little more than cancel out the reduction in the UAE across November as a whole and leave output fairly stable," Horsnell said. "It would then be December before the increase became significant and January before that oil turned up in the market."

Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, said Sept. 17, "The OPEC decision to increase output by 500,000 b/d has been so far discounted by the market, but we think that it deserves closer attention when increases from Angola and Iraq are taken into account." Jakob said, "The overall OPEC production number for November is still difficult to assess due to maintenance in the UAE, but even with a very conservative outlook on Iraqi supplies, we should have OPEC in December producing 700,000 b/d over December 2006 and in the first quarter of 2008, [an increase of] 850,000 b/d vs. the first quarter of 2007, and this before any increases from Nigeria."

Hurricane Humberto
Hurricane Humberto surprised forecasters as it intensified quickly from a tropical storm to a hurricane while making landfall Sept. 13 at High Island, Tex. High winds snapped power lines in East Texas. The US Minerals Management Service said there were no reports of suspended oil or gas production or offshore evacuations because of Humberto. But three refineries in Port Arthur, Tex., lost power:

-- A Shell Oil Co. spokesman said Sept. 17 workers restored power to most of Motiva Enterprises LLC's 285,000 b/d refinery in Port Arthur and began the restart sequence.

-- Valero Energy Corp. said full power was restored to its 250,000 b/d refinery Sept. 14, and start-up was under way. Officials expected to return to normal production by Sept. 22.

-- Total SA reported that partial power was restored to Total Petrochemicals USA's 231,252 b/d refinery late Sept. 13 and that it was expected to be back up within 5 days.

Temporary loss of three refineries stimulated market concerns over US fuel stocks, with crude inventories at the lowest level in 8 months and gasoline at the lowest position in 2 years. Analysts with the Societe Generale Group in Paris reported Sept. 17 that US oil inventories were still decreasing and that the promised increase of 500,000 b/d in production from the Organization of Petroleum Exporting Countries is not big enough to prevent crude oil stock draws in the fourth quarter.

"Markets worry about a worsening US economy that could hit demand. Oil analysts predominantly expect a decrease in the West Texas Intermediate price," they said.

(Online Sept. 17, 2007; authors' e-mail: paulad@ogjonline.com and samf@ogjonline.com)


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