Sam Fletcher
Senior Writer
HOUSTON, Oct. 24 -- Crude oil prices increased Oct. 21 as Hurricane Wilma pushed large swells into the Gulf of Mexico, forcing more evacuations of rigs and platforms and shutting in more production.
The US Minerals Management Service reported 16 rigs and 211 platforms were evacuated in the gulf as of Oct. 21, 11 more rigs and 1 more platform than a day earlier. Shut-in production increased to 986,805 b/d of crude and to 5.337 bcfd of natural gas. Cumulative production lost since Aug. 26 was up to 64.5 million bbl of crude and 326.5 bcf of natural gas as of Oct. 21.
Wilma missed most of the offshore production area in the gulf and crashed into southwest Florida as a Category 3 storm Oct. 24.
Other market factors
As of Oct. 21, the Louisiana Office of Conservation reported 876.3 MMcfd of natural gas production had been restored onshore and in state waters in 38 parishes. That amounted to 39.2% of the total natural gas production from that area prior to Hurricanes Katrina and Rita. Some 47.3% of the wells in that region remain shut-in, and the office had received no information at all on 22.2% of the regional oil and gas wells.
"The recent easing of crude oil prices appears to have been driven by rising US crude oil inventories and increasing talk of 'demand destruction' in the US as a consequence of Hurricanes Katrina and Rita and high retail oil product prices. Both of these phenomena may be misleading, though," said the Centre for Global Energy Studies (CGES), London. "US crude oil inventories have risen because the demand for crude from US refineries fell by around 4 million b/d in the immediate aftermath of the storms, and [refining] capacity of 1.3 million b/d remains shut."
Meanwhile, the growth in demand for oil during 2005 now looks to be little more than a third of the growth seen in 2004, and high oil prices have been felt by consumers in a way not experienced last year, CGES said. Although global oil demand growth is expected to remain weak in 2006, it should still outstrip supply growth outside the Organization of Petroleum Exporting Countries of less than 1 million b/d, said CGES in an Oct. 24 report. OPEC should have little difficulty in keeping oil prices above $50/bbl but will probably have to cut production to do so.
In its Monthly Oil Report, CGES said: "Strong demand for low-sulfur distillates has driven up refinery utilization rates and pushed refiners to seek supplies of light, sweet crude to maximize their output of light, sweet products. Highly sophisticated deep conversion capacity is fully utilized, and incremental distillate supply is coming from less sophisticated refineries, which produce large quantities of unwanted heavy product. This heavy product is competing with heavy crudes as a feedstock for coking refineries but paradoxically does not appear to be undermining crude oil prices. One reason for this might be Saudi Arabia's pricing policy."
As the only producer with appreciable spare production capacity, CGES said, Saudi Arabia has little incentive to raise output, which would lower the oil price.
"To profit from running Arab Heavy crude oil, hydroskimming refiners on the US Gulf Coast currently need a discount for the grade of around $20/bbl against West Texas Intermediate, much larger than the $13.50/bbl discount being offered by Saudi Arabia for November sales of delivered cargos," CGES said. "The kingdom is setting its discounts at a level designed to appeal to refiners with sophisticated upgrading capacity, not those operating simple hydroskimming plants."
Energy prices
The new front-month December contract for benchmark US light, sweet crudes increased by 61¢ to $60.63/bbl Oct. 21 on the New York Mercantile Exchange. The January contract gained 75¢ to $60.82/bbl. On the US spot market, WTI at Cushing, Okla., was up by 15¢ to $61.19/bbl. Gasoline for November delivery escalated by 2.68¢ to $1.64/gal on NYMEX. However, heating oil for the same month dipped by 0.34¢ to $1.87/gal. The November natural gas contract fell 10.5¢ to $12.87/MMbtu on NYMEX.
In London, the December contract for North Sea Brent crude increased by 57¢ to $58.48/bbl on the International Petroleum Exchange. Gas oil for November lost $11.25 to $555.75/tonne.
The average price for OPEC's basket of 11 benchmark crudes slipped by 38¢ to $52.47/bbl On Oct. 21. So far this year, OPEC's basket price has averaged $50.31/bbl.
Contact Sam Fletcher at [email protected].
