Sam Fletcher
Senior Writer
HOUSTON, Sept. 29 -- The November contract for benchmark US light, sweet crude closed at a record $49.90/bbl Tuesday, up by 26¢ for the day, after surging to an all-time intraday high of $50.47/bbl on the New York Mercantile Exchange.
Traders shrugged off a statement by Saudi Arabia's Oil Minister Ali al-Naimi that the kingdom would increase its oil production capacity by 1.5 million b/d to 11 million b/d by intensifying drilling in producing fields. Instead, the market reacted to threats to oil production in Nigeria, the fifth-largest exporter of crude, and the slow return of Gulf of Mexico oil and gas production shut in by Hurricane Ivan.
Crude supply problems
"The Niger Delta People's Volunteer Force, a major rebel group in the oil-rich delta, has reiterated its threat to launch what it calls 'Operation Locust Feast' this Friday. This offensive, the group has said, will be aimed at foreign oil workers and oil infrastructure in the region," said analysts Wednesday at Raymond James & Associates Inc., St. Petersburg, Fla. The one "glimmer of hope," said analysts, was that the rebel group's leader said he was scheduled to meet with Nigerian President Olusegun Obasanjo Wednesday. However, the president's office denied that negotiations are taking place.
Meanwhile, the Royal Dutch-Shell Group said Tuesday it shut in its Santa Barbara oil pump station in the Niger Delta, which normally pumps 28,000 b/d, because it was unable to fix technical problems at that site, due to restrictions on staff and supply movements as a result of the conflict in that area.
In New Orleans, the US Minerals Management Service said Wednesday that Gulf of Mexico potential production of 485,128 b/d of crude and 2.3 bcfd of natural gas remained shut in. Lost production from shut-in wells in the gulf during Sept. 11-29 now totals 12.4 million bbl of oil and 55.5 bcf of gas, MMS said.
"A loss of so much light, sweet crude in a location so close to market would have had a significant impact under any circumstances. With the current tightness, that impact is greatly magnified," said Paul Horsnell, Barclays Capital Inc., London.
Low Inventories
The US Energy Information Administration reported Wednesday an increase in US crude inventories for the first time in 9 weeks, up by 3.4 million bbl to 272.9 million bbl in the week ended Sept. 24, after plunging by 9.1 million bbl the previous week and by 7.1 million bbl the week before that because of storms in the Gulf of Mexico.
Industry sources said Hurricane Ivan dropped US refinery production to the lowest level since April 2003. IEA reported US gasoline stocks fell by 900,000 bbl to 198.8 million bbl during the latest week, with distillates down by 1.3 million bbl to 125.5 million bbl, with a decline in diesel fuel more than offsetting a small increase in heating oil.
Ivan's main effect "has been to create a real problem with US oil product inventories," Horsnell said. "Heating oil prices have moved to ever higher record levels," he observed. "While heating oil remains the key market driver, the gasoline market is also tightening significantly."
Energy prices
The December contract for benchmark US crudes also increased by 26¢, to $49.19/bbl Tuesday on NYMEX, while on the US spot market, West Texas Intermediate at Cushing, Okla., was up by the same amount to $49.91/bbl. Gasoline for October delivery advanced by 1.16¢ to $1.36/gal on NYMEX. Heating oil for the same month gained 0.98¢ to $1.38/gal. The expiring October natural gas contract jumped by 46.1¢ to $5.73/Mcf Tuesday on NYMEX, due to slow recovery of offshore production in the Gulf of Mexico. "In fact, little improvement has been made since last Thursday," said analysts Wednesday at Enerfax Daily.
In London, the November contract for North Sea Brent crude gained 52¢ to $46.45/bbl Tuesday on the International Petroleum Exchange. Gas oil for October delivery declined by $1.25 to $429.75/tonne. The October natural gas contract increased by 11.3¢ to the equivalent of $5.08/Mcf on IPE.
The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes was up by 64¢ to $43.54/bbl Tuesday.
Contact Sam Fletcher at [email protected]