Possible release of oil from the Strategic Petroleum Reserve outweighed the threat of a hurricane hitting the Louisiana coast, undercutting crude prices Aug. 27 even as workers evacuated offshore facilities and Gulf Coast refineries reduced runs.
Oil prices rose in early trading Aug. 28, however, with Tropical Storm Isaac located 165 miles southeast of New Orleans and expected to reach Category 1 strength as it moves slowly through a primary oil and gas production area in the Gulf of Mexico. The storm is predicted to make landfall along the Louisiana coast tonight or in the early hours of Aug. 29, the seventh anniversary of the much stronger Hurricane Katrina that devastated New Orleans in 2005. Meanwhile, strong winds extending 185 miles from the storm were already whipping the coasts of Louisiana, Mississippi, and Alabama.
The Bureau of Safety and Environmental Enforcement reported workers were evacuated by midday Aug. 27 from 346 of the 596 manned production platforms and 41 of the 76 rigs operating in the gulf. It said 78% of daily oil production and 48% of daily gas production from federal leases in the gulf were shut in.
With the storm predicted to dump 14-20 in. of rain in some land areas, four Louisiana refineries with total capacity of 769,500 b/d shut down and another three with total capacity of 958,500 b/d were operating at reduced capacity.
Crude traded lower Aug. 27 on “growing speculation” Isaac will provide justification for President Barack Obama to release SPR oil into the US market, said analysts in the Houston office of Raymond James & Associates Inc. Fueled by remarks of various administration officials, traders generally expect an SPR release to reduce energy costs prior to the presidential election.
Meanwhile, the front-month natural gas contract fell 2% to a 2-month low in the New York futures market Aug. 27 “as supply surplus concerns trumped hurricane production shutdowns,” Raymond James analysts said. Broader markets closed relatively flat as investors await the Aug. 30 opening of the Jackson Hole economic policy symposium hosted by the Federal Reserve Bank of Kansas City. Many hope—but few expect—Fed Chairman Ben Bernanke to announce new steps to stimulate the US economy. Officials of the European Central Bank announced they will not attend that conference because of a heavy workload.
The Conference Board Inc. in New York said Aug. 28 its Consumer Confidence Index fell to its lowest point since November 2011, to 60.6 in August from 65.4 in July. Economists had expected a much higher reading. On the other hand, the Standard & Poor's and Case-Shiller home price index increased, indicating the housing market is strengthening. In Europe, Spain’s and Italy’s financial problems worsened.
The October contract for benchmark US sweet, light crudes fell 68¢ to $95.47/bbl Aug. 27 on the New York Mercantile Exchange. The November contract dropped 66¢ to $95.79/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 68¢ to $95.47/bbl.
Heating oil for September delivery inched up 0.17¢ but closed essentially unchanged at a rounded $3.11/gal on NYMEX. Reformulated stock for oxygenate blending for the same month climbed 7.68¢ to $3.15/gal.
The September natural gas contract lost 4.9¢ to $2.65/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., increased 1¢ to $2.80/MMbtu.
In London, the October IPE contract for North Sea Brent was down $1.33 to $112.26/bbl. Gas oil for September gave up $6.75 to $982.75/tonne.
The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes retreated 8¢ to $112.04/bbl.
Contact Sam Fletcher at email@example.com.