MARKET WATCHRefinery power problems push up gasoline futures price

Aug. 18, 2003
Spurred by refinery outages associated with the power blackout Thursday in the Northeast US and eastern Canada, traders bid up the September contract for unleaded gasoline by 2.31¢ to 99.94¢/gal—a new high for that contract—during an abbreviated trading session Friday on the New York Mercantile Exchange.

Sam Fletcher
Senior Writer

HOUSTON, Aug. 18 -- Spurred by refinery outages associated with the power blackout Thursday in the Northeast US and eastern Canada, traders bid up the September contract for unleaded gasoline by 2.31¢ to 99.94¢/gal—a new high for that contract—during an abbreviated trading session Friday on the New York Mercantile Exchange.

Trading in that market was shortened to only a 2-hr session Friday because of problems associated with the power outage Thursday night. Trading desks were lightly staffed as a result of transportation being disrupted by the lingering power problem. Some difficulties in transmitting prices and other data were reported, but NYMEX officials said normal trading was expected to resume Monday.

Power problems
Power outages at four refineries in the US Midcontinent took some 540,000 b/d of capacity offline, while five plant shutdowns in Ontario removed another 460,000 b/d of production, said Andrew C. Fairbanks, Merrill Lynch & Co. Inc., New York. Sunoco Inc.'s Philadelphia area refineries were unaffected and Valero Energy Corp.'s East Coast plants are running. Montreal and Canadian Atlantic area refineries were also not affected by the blackout, Fairbanks said.

"Most power-related shutdown (and) restart events last 1-3 days, if the plant is undamaged," Fairbanks said. "We won't know what kind of shape the facilities are in until the appraisal and restart efforts commence over the next several days."

US gasoline supplies were reported Monday to be tight on both the East and West coasts before the traditional end of the peak US driving season, marked by the Labor Day weekend of Aug. 30-Sept. 1. But the price for unleaded gasoline for September delivery dipped slightly in overnight trading because of light profit-taking, setting the stage "for a steady-to-weaker tone" in early trading Monday, said officials at INO.com Inc., an online resource for futures and options traders.

Thursday's blackout resulted in the loss of approximately 62,000 Mw of generating capacity from regional transmission grids, affecting up to 50 million people and creating a public relations nightmare for the utility industry, said Ronald Barone, UBS Warburg LLC, New York, in a Monday report.

While the specific cause has yet to be determined, he said, authorities speculated that the outage might have been triggered by the failure of an overworked 345,000 v transmission line in Ohio, which created a cascading effect of instability throughout the regional grid and ultimately forced the shutdown of nearly 24 power generation facilities in the region.

"We do not view such a system failure as unthinkable, given the lack of investment in the nation's aging transmission infrastructure. In fact, capital investment in transmission has actually declined over the last several years," Barone said.

Oil prices slump
The September and October contracts for benchmark US light, sweet crudes dropped 4¢ each to $31.05/bbl and $30.99/bbl, respectively, Friday on NYMEX, despite a sabotage attack that same day that destroyed a section of the pipeline from the Kirkuk oil field in northern Iraq to the Mediterranean export terminal in Ceyhan, Turkey, only 2 days after it had been reopened (OGJ Online, Aug. 14, 2003).

Another section of that same pipeline was destroyed by saboteurs Saturday, dealing a serious setback to US effort to reactivate Iraqi oil exports.

The NYMEX price for the September crude contract was higher in overnight trading early Monday, but INO.com officials claimed the market had merely "extended its short-covering bounce off last Thursday's low," with traders forced to make purchases to offset open market positions.

Heating oil for September delivery lost 0.87¢ to 80.51¢/gal Friday on NYMEX.

The September natural gas contract continued to decline, dropping 4.3¢ to $4.85/Mcf, "with front months pressured by follow-through selling after last week's bearish storage build and expectations for another big gain this week," said analysts Monday at Enerfax Daily.

"The technicals don't look very healthy after last Thursday's selloff, and traders are expecting the Northeast power outage to lead to a higher (natural gas) injection (into US underground storage) this week. If you can't burn the gas, you have to put it somewhere," analysts said.

In London, the October contract for North Sea Brent oil lost 6¢ to $28.81/bbl Friday on the International Petroleum Exchange as that market also shrugged off the sabotage of the Kirkuk-Ceyhan pipeline.

It appeared that market was overbought and needed a downward correction, brokers reported. There still is room for prices to fall before stabilizing, they said. However, brokers said the market is unlikely to rise above $29/bbl in the near term because resistance at that level remains strong.

The average price for the Organization of Petroleum Exporting Countries' basket of seven crudes gained 40¢ to $28.42/bbl Friday, marking 11 trading days that its price has exceed the group's target of $22-28/bbl.

For all of last week, the OPEC basket price averaged $28.72/bbl, up 6¢ from the previous week's average. So far this year, OPEC's basket price has averaged $28.04/bbl, up from an average $24.36/bbl for all of 2002.

Contact Sam Fletcher at [email protected]