MARKET WATCHEnergy prices increase slightly

Sept. 9, 2005
Energy prices generally increased slightly Sept. 8, perhaps having bottomed out in their recent decline as more crude oil and petroleum products came available in the aftermath of Hurricane Katrina.

Sam Fletcher
Senior Writer

HOUSTON, Sept. 9 -- Energy prices generally increased slightly Sept. 8, perhaps having bottomed out in their recent decline as more crude oil and petroleum products became available in the aftermath of Hurricane Katrina.

Analysts at Purvin & Gertz Inc., Houston, noted in a Sept. 8 report that assessments are still under way for some large production platforms, subsea pipelines, and key refineries that remain offline.

"Even in the best of circumstances, a full recovery for some of these facilities is not likely in the short term. Therefore, the fundamental supply-demand balances for crude and natural gas will remain tight in the coming weeks and months," Purvin & Gertz said.

The US Minerals Management Service said Sept. 8 that crews had not yet returned to 5 rigs and 125 production platforms in the Gulf of Mexico. Officials said 901,726 b/d of crude—more than 60% of the gulf's normal production—and 4 bcfd, or 40.2%, of natural gas production are still shut in. Cumulative gulf production lost to Hurricane Katrina Aug. 8-Sept. 7 totaled 14.6 million bbl of crude and 75.8 bcf of natural gas.

"Numerous offshore platforms have reported damage, and questionable conditions of some subsea pipelines are constraining other fields from restarting," said Purvin & Gertz. In addition, no startup plans have been announced yet for four major Gulf Coast refineries having total capacity of nearly 900,000 b/d.

"The US and Canadian refined products markets are tightly linked, bringing Canadian pump prices [for gasoline] to record highs throughout the country as a direct result of Katrina's impacts on the US refining industry," Purvin & Gertz said. "Canadian refiners have been requested to defer turnaround activity where possible to limit the potential of product supply shortages."

"With offshore imports of gasoline now steaming toward the US Eastern Seaboard to supplement supplies lost from refinery slowdowns and shutdowns related to Hurricane Katrina, any deferrals of Canadian refinery maintenance downtimes would limit competition for the imported supply," they added.

Natural gas production also has increased in the Gulf of Mexico since the initial shut-in caused by Hurricane Katrina. "Although many offshore production platforms sustained damage, most of the subsea natural gas pipelines appear to have survived the storm with only minimal damage," Purvin & Gertz reported.

The US Energy Information Administration earlier reported four large natural gas processing plants on the Gulf Coast with a combined capacity of 5.5 bcfd were damaged by the storm. However, Purvin & Gertz said the many interconnections of offshore pipelines could permit the gas processing industry to reroute much of that gas to other processing plants with spare capacity.

Still, EIA said, the US natural gas market is "likely to stay tight over the next couple of months." It expects natural gas spot prices to increase this winter 37-50% above 2004 averages.

Many observers worry about Katrina's impact on US storage of natural gas for the winter heating season, saying that 9 weeks remain to reach a comfortable gas inventory level of 3.3 tcf by Nov. 1.

"Forecasts are suggesting a colder-than-normal winter and are causing considerable concern regarding the adequacy of supplies if gas storage levels cannot be rebuilt. This has resulted in [New York] natural gas futures prices spiking from around $10/MMbtu in mid-August to as high as $12.50/MMbtu in early September," Purvin & Gertz said.

Energy prices
The October contract for benchmark US light, sweet crudes bumped up by 12¢ to $64.49/bbl Sept. 8 on the New York Mercantile Exchange, while the November position advanced by 24¢ to $65.27/bbl. Subsequent monthly contracts through April 2006 remained in contango, with prices progressively higher for each.

On the US spot market, West Texas Intermediate at Cushing, Okla., was up by 12¢ to $64.50/bbl.

Gasoline for October delivery gained 1.33¢ to $2.04/gal on NYMEX. But heating oil for the same month continued to decline, down by 3.07¢ to $1.93/gal. The October natural gas contract jumped by 14.6¢ to $11.35/MMbtu.

In London, the October contract for North Sea Brent increased by 19¢ to $63.08/bbl on the International Petroleum Exchange. The September contract for gas oil fell by $28.50 to $593.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes lost 95¢ to $57.48/bbl on Sept. 8.
Contact Sam Fletcher at [email protected]