Sam Fletcher
Senior Writer
HOUSTON, Sept. 16 -- Futures prices for oil and natural gas fell Monday as Hurricane Isabel moved away from production in the Gulf of Mexico, but gasoline futures rebounded on fears that the powerful storm will shut down some East Coast refineries.
The slightly weakened Isabel was downgraded to a Category 3 hurricane with sustained winds near 115 mph but is still considered dangerous. It was reported some 660 miles south-southeast of Cape Hatteras, NC, early Tuesday, moving northwest at 7 mph. Forecasters expect it to hit North Carolina's Pamlico Sound on Thursday afternoon and then to turn north of Chesapeake Bay.
Traders fear the storm will threaten refinery operations in Pennsylvania, New Jersey, and the Delaware Bay area and might disrupt oil imports along the East Coast as well as deliveries of crude and petroleum products at New York Harbor.
The hurricane also might "force some Mid-Atlantic [coastal] nuclear units to ramp down or shut later in the week as a precaution against the storm, boosting demand for natural gas," said analysts Tuesday at Enerfax Daily.
Refinery expansions lag
Meanwhile, US demand growth for petroleum products is expected to outpace the "creep" of added US refinery capacity in 2003-04 for the first time since 1999, Prudential Equity Group Inc., Newark, NJ, reported Monday. "We forecast an average annual product demand growth rate of 1.6% over the 2003-04 period, 527,000 b/d greater than our average annual capacity growth forecast (0.4%) for the same period," analysts said.
According to the group's sixth annual survey of 26 companies that account for 96% of total US refining, capacity "will likely increase by 0.2% in 2003 and 0.5% in 2004." That's less than the 2002 increase of 1.3% and below the average annual increase of 1.1% in 1998-2002.
"The long-term fundamentals of the US refining industry continue to strengthen due to a combination of low levels of capacity creep and more stringent product specifications," said Prudential Equity analysts. "Although long-term supply fundamentals have improved, the refining business remains volatile, owing to its commodity nature."
The group's forecast US refining margin of $6.50/bbl for 2003 "is 40% higher than both last year's figure and our normalized estimate of $4.65/bbl. We expect refining margins to weaken seasonally as the summer driving season winds down and before the winter heating season begins," they said.
US refining margins in 2004 are expected to average $4.65/bbl, "the same as our normalized estimate," said analysts. That forecast is based on assumptions that demand will continue to increase; inventories of refined products will grow "toward the middle of their 5-year range;" and normal weather patterns will prevail.
Energy prices
Unleaded gasoline for October delivery jumped by 1.41¢ to 85.93¢/gal Monday on the New York Mercantile Exchange, the only gainer among near-month energy commodities during that session. Heating oil for the same month dipped by 0.07¢ to 74.7¢/gal. The October contract for benchmark US sweet, light crudes slipped by 13¢ to $28.14/bbl, the lowest price for near-month oil in nearly 4 months, analysts said. The November contract lost 15¢ to $28.25/bbl.
The October natural gas contract fell 8.1¢ to $4.69/Mcf Monday on NYMEX in "a steady stream of selling" as Hurricane Isabel moved up the US East Coast and away from gulf gas production. "The onset of scheduled autumn maintenance at nuclear power plants could push up demand for natural gas-fired generation in coming weeks and help limit the downside in prices," said Enerfax analysts.
In London, the October contract for North Sea Brent oil declined by 7¢ to $26.70/bbl Monday on the International Petroleum Exchange. The October natural gas contract fell by 4.2¢ to the equivalent of $3.04/Mcf on IPE.
The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes was down 15¢ to $25.79/bbl Monday.
Contact Sam Fletcher at [email protected]
