MARKET WATCH: NYMEX crude briefly tops $80/bbl

Paula Dittrick
Senior Staff Writer

HOUSTON, Sept. 13 -- The October contract for benchmark US light, sweet crudes briefly reached $80.18/bbl during trading on the New York Mercantile Exchange Sept. 12 before settling at a record $79.91, up $1.681 from the Sept. 11 closing price.

Analysts noted that oil remains below inflation-adjusted highs hit in early 1980. Depending on the adjustment, a $38/bbl of oil in 1980 would be worth roughly $100/bbl in 2007 dollars.

The escalating prices followed the US Energy Information Administration weekly inventory reports showing drops in oil and gasoline supply (OGJ Online, Sept. 12, 2007).

Earlier in the week, the Organization of Petroleum Exporting Countries announced plans to increase its production quota by 500,000 b/d, effective Nov. 1 (OGJ Online, Sept. 11, 2007).

"We believe the door to $80[/bbl] and beyond remains open and beckons," Barclays Capital analyst Paul Horsnell of London said in a research note on Sept. 12.

OPEC "probably should have increased by a tad more if there was a desire to keep the incursion above the $80/bbl reasonably limited," Horsnell said. Before the production increase announcement, OPEC production was expected to fall during November because of heavy field maintenance in the UAE.

Maintenance slated for the giant mature 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, he said.

"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."

US Sec. of Energy Samuel Bodman called high oil prices "troublesome" while speaking to reporters in Washington, DC, after a Sept. 12 speech. He said was not concerned by oil inventory levels.

Hurricane Humberto
Meanwhile, daily energy prices were supported by concerns about a tropical depression that formed in the western Atlantic and become Tropical Storm Humberto.

It turned into Hurricane Humberto and was a Category 1 hurricane as it made landfall near High Island, Tex., the National Hurricane Center said. At 8 a.m. EDT on Sept. 13, Humberto was on the Texas-Louisiana border about 25 miles west-northwest of Lake Charles, La.

The Houston Ship Channel was closed on Sept. 12 in advance of the storm, and it remained closed before noon Sept. 13 pending improved weather conditions at its mouth in the gulf.

In Port Arthur, Tex., a power failure shut down Total Petrochemicals USA's 231,252 b/cd refinery early Sept. 13, but operations were expected to resume later in the day. Ship pilots shut traffic on the Sabine-Neches Waterway serving Beaumont and Port Arthur and on the Calcasieu Ship Channel serving Lake Charles.

Valero Energy Corp.'s Port Arthur refinery was down Sept 13 due to a power loss caused by Hurricane Humberto.

"Some power has been restored to the plant, but it will take time to assess the status of the production units and bring them back online. We don't have a timetable yet for when production will resume, but we are working to accomplish this as quickly as possible," Valero said.

IEA demand report
The International Energy Agency said world oil demand will grow slower than expected in the fourth quarter and next year.

In its monthly Oil Market Report, IEA said world demand would rise by 2.35 million b/d to 87.8 million b/d in the fourth quarter, 240,000 b/d less than it had expected last month.

IEA reduced its 2008 demand outlook to 88 million b/d, down 160,000 b/d. The agency said more downward adjustments are probable.

"It is likely that credit conditions in the US and other developed countries will tighten," EIA said. "Economic growth will probably suffer to some degree, conferring a downside risk to oil demand, but the impact is as yet very uncertain."

Energy prices
The November contract for US light, sweet crudes increased $1.54 to $78.54/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., soared $1.63 to $79.97/bbl.

The October contract for reformulated blendstock for oxygenate blending (RBOB) rose 3.49¢ to $2.016/gal on NYMEX. Heating oil for the same month rose 3.64¢ to $2.2191/gal.

The October natural gas contract climbed 50.4¢ to $6.438/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., rose 17¢ to $6.14/MMbtu.

In London, the October IPE contract for North Sea Brent crude $1.30 to $77.68, the highest since Aug. 7, 2006.

The average price for OPEC's basket of 11 benchmark crudes increased by $1.08 to $74.21/bbl on Sept. 12.

Contact Paula Dittrick at paulad@ogjonline.com.

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