MARKET WATCH: Hurricane Isaac raises benchmark crude oil price

Crude oil prices rose in London and New York markets Aug. 28 as Hurricane Isaac approached the Louisiana coast. But gasoline and natural gas prices retreated despite shutdowns of refining capacity in the state and of Gulf of Mexico production.

The Bureau of Safety and Environmental Enforcement reported workers had been evacuated from 503 of the 596 manned production platforms and 49 of the 76 rigs working in the Gulf of Mexico by midday Aug. 28. Officials said 93.28% of the daily oil production and 66.7% of daily gas production from the gulf were shut in ahead of the storm (OGJ Online, Aug. 29, 2012).

Although benchmark crude was up in the New York market, analysts in the Houston office of Raymond James & Associates Inc. reported, “Louisiana light sweet crude was down 1.2% due to Gulf Coast refinery closures. Meanwhile, gas futures fell 1.5% as supply impacts weren't enough to combat record high storage. Against this mixed backdrop, the [SIG Oil Exploration & Production Index] rose 0.5% and the [Oil Service Index] fell 0.4%.” They said, “For the rest of this week, expect the markets to fixate on the central banker retreat” at Jackson Hole, Wyo. (OGJ Online, Aug. 28, 2012).

Isaac came ashore as a Category 1 hurricane at 7:45 p.m. EDT Aug. 28 on the Louisiana coast near the mouth of the Mississippi River, pushing an 11-ft wall of water ahead of it. Water breached a levee in Plaquemines Parish, flooding some homes. That levee, maintained by the parish, was not among those upgraded after Hurricane Katrina in 2005.

Isaac weakened some but was still at hurricane strength and was reported near Houma, La., about 60 miles southwest of New Orleans moving northwest at 6 mph early Aug. 29, the seventh anniversary of the much stronger Katrina that devastated the Crescent City. Weather officials said the storm will move through the state Aug. 30, dumping 14-20 in. of rain in some areas. It will continue to weaken with the remnant expected to enter Arkansas in the early hours of Aug. 31.

SPR release debate

The Obama administration said it is considering releasing oil from the US Strategic Petroleum Reserve to compensate for the disruption of gulf production due to the storm. Analysts report benchmark US crude prices are up 22% since late June, while Brent crude has increased 22%.

However, Walter de Wet at Standard New York Securities Inc., the Standard Bank Group, reported, “The Brent crude front-month contract remains under pressure since the close [Aug. 24] when Brent dropped from just above $114/bbl to below $111/bbl. West Texas Intermediate front-month prices have rebounded marginally from lows of around $95.20/bbl yesterday to $95.60 today [Aug. 29]. Some support for crude has crept in from a marginally weaker dollar this morning, although the crude oil price is still struggling to regain the $112/bbl mark.”

As far as the oil industry is concerned, Raymond James analysts said, “The slow-moving Category 1 hurricane remains relatively benign, and normal production operations are likely to resume fairly quickly.” While most of gulf gas production is shut in, they noted, “Gas demand has been curbed by power outages that occurred last night, and onshore power outages may hamper refinery operations for a few days longer.”

US inventories

The Energy Information Administration reported Aug. 29 commercial US crude inventories rose 3.8 million bbl to 364.5 million bbl in the week ended Aug. 24, opposite Wall Street’s consensus for a draw of 1.8 million bbl. Crude stocks are above average for this time of year. Gasoline inventories dropped 1.5 million bbl to 201.2 million bbl, exactly as analysts predicted. Both finished gasoline and blending components declined. Distillate fuel stocks increased 900,000 bbl to 126.1 million bbl, exceeding the market’s outlook for a 200,000 bbl gain. Distillate inventories remain below average for the period.

The American Petroleum Institute earlier reported US crude inventories jumped by 5.5 million bbl to 366.5 million bbl last week. It said gasoline stocks fell 2.4 million bbl to 204.1 million bbl, while distillate fuel was up 1.4 million bbl to 126.5 million bbl.

Imports of crude into the US increased 1.3 million b/d to 9.5 million b/d last week, EIA reported. In the 4 weeks through Aug. 24, US imports of crude averaged 8.8 million b/d, down 438,000 b/d from the comparable period a year ago. Gasoline imports last week averaged 690,000 b/d while distillate imports averaged 134,000 b/d.

The input of crude into US refineries inputs was down 58,000 b/d to 15.4 million b/d last week with units operating at 91.2% of capacity. Gasoline production decreased to 9.2 million b/d; distillate fuel production declined to 4.7 million b/d, EIA said.

Energy prices

The October contract for benchmark US light, sweet crudes regained 86¢ to $96.33/bbl Aug. 28 on the New York Mercantile Exchange. The November contract recouped 84¢ to $96.63/bbl. On the US spot market, WTI at Cushing, Okla., matched the front-month crude futures contract, up 86¢ to $96.33/bbl.

Heating oil for September delivery inched up 0.85¢ to $3.12/gal on NYMEX. Despite the shutdown of refining capacity in Louisiana ahead of Hurricane Isaac, reformulated stock for oxygenate blending for the same month declined 2.87¢ to $3.13/gal.

The September natural gas contract dropped 3.9¢ to $2.61/MMbtu on NYMEX, even as gas production in the Gulf of Mexico was being curtailed because of the storm. On the US spot market, gas at Henry Hub, La., fell 8.8¢ to $2.71/MMbtu.

In London, the October IPE contract for North Sea Brent increased 32¢ to $112.58/bbl. Gas oil for September continued its decline, down $3.75 to $979/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes dropped $1.82 to $110.22/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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