MARKET WATCHEnergy prices continue to climb in storm's aftermath

Sept. 22, 2004
Energy prices continued to escalate Tuesday amid growing evidence that Gulf of Mexico oil and natural gas production shut in by Hurricane Ivan will take longer to bring back on stream than some traders expected.

Sam Fletcher
Senior Writer

HOUSTON, Sept. 22 -- Energy prices continued to escalate Tuesday amid growing evidence that Gulf of Mexico oil and natural gas production shut in by Hurricane Ivan will take longer to bring back on stream than some traders expected.

Because of that storm, which came ashore in Alabama Sept. 16, US imports of crude fell by nearly 1.5 million b/d, averaging over 8.4 million b/d, during the week ended Sept. 17, the US Energy Information Administration reported Wednesday. "It appears that Hurricane Ivan dramatically reduced imports from Venezuela last week, while shipments from Saudi Arabia surged," said EIA officials. Total gasoline imports into the US averaged 884,000 b/d during that week, while imports of distillate fuel averaged 227,000 b/d.

Refineries impacted
With many Gulf Coast refineries shut down in preparation for the storm or else cut off from their usual offshore supplies, the input of crude into US refineries plummeted by nearly 1.3 million b/d to 14.7 million b/d during the same period. US gasoline production fell to 8.4 million b/d, with distillate production down to 3.7 million b/d.

As a result, commercial US inventories of crude plunged by 9.1 million bbl to 269.5 million bbl last week, "well below the lower end of the average range for this time of year," EIA officials said. That's on top of a 7.1 million bbl drop in US crude stocks during the week ended Sept. 10, largely due to an 800,000 b/d decline in crude imports as Hurricanes Frances and Ivan interrupted crude shipments through the Caribbean.

US gasoline stocks fell by 2.8 million bbl to 199.7 million bbl in the latest week, and distillate inventories dropped by 1.5 million bbl to 126.8 million bbl, with heating oil accounting for most of the decrease.

Traders are concerned about the resulting slowdown in the build of heating oil inventories headed into the peak winter demand season, analysts said.

The US Minerals Management Service on Tuesday updated its preliminary report of damage to offshore facilities from the hurricane, listing a total of 7 fixed platforms destroyed, up from 3 reported earlier (OGJ Online, Sept. 21, 2004). It also reported extensive damage to 4 fixed platforms, 1 mobile drilling rig, and 2 spars. The number of offshore pipeline leaks increased to 13 from 3 previously. However, no pollution, injuries, or fatalities were reported.

Mixed news on Yukos
Meanwhile, there was mixed news of OAO Yukos, Russia's beleaguered oil giant. Yukos Chairman Viktor Gerashchenko was quoted in the Wednesday edition of the Kommersant newspaper that his company won't file for bankruptcy protection. Such a move would be interpreted by a Russian court as premature and unjustified, and would expose the company to new legal problems, he said in a report picked up by Dow Jones Newswires.

On Tuesday, however, another Russian publication reported the Natural Resources Ministry next week may consider withdrawing the operating license of Yuganskneftegaz, Yukos's key production unit. In the interim, China is urging Yukos to fulfill contracts to ship crude to China National Petroleum Corp. (OGJ Online, Sept. 20, 2004).

Purnomo Yusgiantoro, conference president of the Organization of Petroleum Exporting Countries, renewed his call Wednesday for oil producers outside of the cartel to boost production to help lower crude prices. He did not mention any countries by name.

Energy markets Tuesday also were affected by new data indicating that China and India are increasing their demands for energy, rather than reducing their rates of consumption as some expected.

Energy prices
The October contract for benchmark US light, sweet crudes jumped by 75¢ to $47.10/bbl Tuesday on the New York Mercantile Exchange, while the November position advanced by 57¢ to $46.76/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., increased by 74¢ to $47.10/bbl.

Heating oil for October delivery escalated by 3.7¢ to $1.30/gal on NYMEX, a level not seen since before the war with Iraq, said analysts. Gasoline for the same month rose by 1.51¢ to $1.29/gal. The October natural gas contract soared by 35.9¢ to $5.61/Mcf Tuesday on NYMEX, as traders were forced to buy supplies to cover open sales contracts.

Typically, the passing of a hurricane or tropical storm in the Gulf of Mexico "causes traders to cash out" of the futures market rally that usually precedes the storm, said analysts Wednesday at Enerfax Daily. However, they said, "Many traders are surprised by the durability of the rally that has now tacked on 23% to [natural gas futures] prices in seven sessions."

In London, the November contract for North Sea Brent crude gained 48¢ to $43.39/bbl Tuesday on the International Petroleum Exchange. Gas oil for October delivery increased by $10.75 to $402.25/tonne. The October natural gas contract shot up by 40.5¢ to the equivalent of $5.38/Mcf on IPE.

The average price of OPEC's basket of seven benchmark crudes gained 51¢ to $40.71/bbl on Tuesday.

Contact Sam Fletcher at [email protected]