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Weak dollar buoys oil prices

Sam Fletcher
Senior Writer

The US dollar at record lows against the euro, China's robust demand for diesel, and market concerns about supply and demand have pushed up oil prices more than 18% so far this year, said analysts in the Houston office of Raymond James & Associates Inc. in mid-April.

At Barclays Capital Inc., London, Paul Horsnell reported, "The drift up in prices and the continuation in the reduction of resistance to higher prices along the curve are still very much a function of perceived imbalances into the future. If we are correct in our view that non-OPEC supply will be at best very weak in 2008 and is likely to fall, despite a decade of rising prices, the impact on perceptions of the long-term clearing price is likely to be a powerful one and likely to be more powerful than any perceived position in the short-term economic cycle." He predicted, "The price highs of the year are not yet in."

Adam Sieminski, global energy economist for Deutsche Bank, said, "We believe the oil price remains mesmerized by the course of the US dollar. If as we expect [the euro] hits $1.62, it would imply the oil price rising to $118/bbl. However, it would require oil prices hitting $145/bbl for the market capitalization of energy companies on the Standard & Poor's 500 to represent a similar share as tech stocks at the peak of the internet bubble."

The weak dollar has lowered the cost of oil to many foreign buyers and has encouraged investments in crude as a hedge against the falling value of US currency and fears of inflation.

As for natural gas, the current difference between gas prices in the US and UK markets "will discourage flows to the US," said Sieminski. "While two new LNG terminals took first deliveries this week and another is coming on soon, we expect utilization rates at these facilities will stay low unless US gas prices rise. We remain bullish on price."

Refinery outages
Input of crude into US refineries was down 113,000 b/d to 14.2 million b/d in the week ended Apr. 11, with refineries operating at 81.4% of capacity. Jacques H. Rousseau at Soleil-Back Bay Research said total refined product inventories—including gasoline, distillate, and jet fuel—declined more than 4 million bbl (1.1%) during the week, due primary to lower supply. "We expect this trend of lower supply and seasonally improving demand to continue in the coming weeks, but we remain concerned that high retail gasoline prices will slow consumption growth during the summer driving season," Rousseau said.

In addition to planned maintenance and the seasonal turn-around efforts at several refineries, several have experienced unexpected disruptions of production. BP PLC began Apr. 14 restarting an alkylation unit at its 460,000 b/d Texas City, Tex., refinery. Just a day earlier, ExxonMobil Corp. began the restart of a CO boiler at fluid catalytic cracking unit No. 3 at its 53,000 b/d Baytown, Tex., refinery.

An Apr. 10 fire at an electrical substation at Marathon Oil's 239,000 b/d refinery in Catlettsburg, Ky., forced the closure of the FCCU.

Sunoco Inc.'s 194,000 b/d Marcus Hook, Pa., refinery was in restart mode Apr. 9 following an Apr. 7 power failure, according to a recent report by Dow Jones Newswires, compiled from both official and unofficial sources. Valero Energy Corp.'s 255,000 b/d Aruba refinery is expected to operate at a reduced rate through April, pending completion of repairs to a crude vacuum unit following a fire on Jan. 25. Coker repairs began in late March at Valero's 210,000 b/d Delaware refinery and are expected to continue through early May.

At Lyondell Chemical Co.'s 268,000 b/d refinery in Houston, an FCCU was shut down Mar. 19 due to a compressor failure and is expected to restart in April. A 20,000 b/d FCC unit was shut in at Valero's 340,000 b/d Corpus Christi refinery. The company's 325,000-b/d Port Arthur refinery is operating at 260,000-270,000 b/d during repairs to drum cracks on a coking unit.

A 43,000 b/d hydrocracker was shut down Apr. 12 at BP's 260,000 b/d Carson, Calif., refinery following a fire at an associated compressor. Exxon restarted a hydrotreater that was idled Apr. 4 due to a fire at its 152,500 b/d Torrance, Calif., refinery. A 36,000 b/d hydrocracker was shut in Apr. 2 to repair a heat exchanger at Valero's 165,000 b/d Benecia, Calif., refinery.

(Online Apr. 21, 2008; author's e-mail: samf@ogjonline.com)


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