Sam Fletcher
Senior Writer
HOUSTON, Aug. 9 -- Crude prices decreased on Aug. 8 as BP PLC indicated it may keep part of the Prudhoe Bay oil field on production as it assesses and repairs corrosion in sections of 22 miles of transit pipelines.
BP already has shut in 200,000 b/d of the field's usual 400,000 b/d of crude production, but that shortage has not yet worked its way through the transport system to the California refineries that receive Alaskan crude.
US Energy Sec. Samuel Bodman said Aug. 8 that crude supplies from Saudi Arabia and Mexico may be diverted to California to make up for the loss of Alaskan crude in that state. The White House said it has been in contact with Saudi Arabia and Mexico in recent days, and both governments pledged to help supply any shortages.
Officials did not say how much additional crude Saudi Arabia and Mexico might be able to provide. However, the only additional production capacity available from Saudi Arabia and other members of the Organization of Petroleum Exporting Countries is heavy crude that they so far have been unable to market, while much of Mexican crude has a higher sulfur content than Alaskan oil. Mexican crude is imported primarily through facilities on the US Gulf Coast.
The administration of President George W. Bush earlier said it was ready to tap into the Strategic Petroleum Reserve if any US refineries request those supplies.
Supply problems
"For the West Coast to seek supply replacement from the [Gulf Coast] and SPR could become the recipe for a real disaster," warned Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. "The region most at supply-risk in the next 2 months is the [Gulf Coast] due to tropical storm disruptions, and any storm there would further delay the resupply of the West Coast."
Moreover, Jakob said, "There is not much spare capacity in Latin America. Venezuela production has not recuperated from the 2003 shutdowns. Mexico's June crude production was down 140,000 b/d from last year as it is facing faster-than-expected declining output at Cantarell [oil field]."
He said, "The additional demand [from California refineries] will come in the peak Asian crude demand season (winter) and as new refineries in India and China should also start to pull more crude (the Chinese crude oil tanks for strategic reserves are also ready for any fill decision)."
Although BP has not yet estimated how long it might take to repair the transit line that connects the Prudhoe Bay field to the Trans-Alaska Pipeline System, the US Energy Information Administration said it expects Alaskan crude oil production to gradually return to full production before February, with a cumulative loss of 50 million bbl of production from the largest US oil field over the next 6 months.
However, Jakob said, "Prudhoe is an aging field with declining output. It is far from certain that [previous] output [levels] will be reachable when the shut-in production is put back on line."
US stocks decline
EIA reported Aug. 9 that commercial US crude inventories fell by 1.1 million bbl to 332.6 million bbl during the week ended Aug. 4. Gasoline stocks dropped 3.2 million bbl to 207.7 million bbl during the same period, while distillate fuel inventories were down by 200,000 bbl to 132.4 million bbl with a drop in the production of conventional diesel offsetting gains by ultralow-sulfur diesel and heating oil.
Imports of crude into the US declined by 266,000 b/d to 10.2 million b/d during the week. Input of crude into US refineries increased by 92,000 b/d to 15.6 million b/d with facilities operating at 91.6% of capacity. Gasoline production increased to 9.2 million b/d with distillate fuel production relatively unchanged at 3.8 million b/d.
Energy price
The September contract for benchmark US light, sweet crudes dropped 67¢ to $76.31/bbl Aug. 8 on the New York Mercantile Exchange. The October contract fell by 70¢ to $77.72/bbl.
On the US spot market, West Texas Intermediate crude at Cushing, Okla., was down by 67¢ to $76.32/bbl. Heating oil for September delivery lost 2.71¢ to $2.12/gal on NYMEX. Gasoline for the same month declined by 2.53¢ to $2.23/gal.
The September natural gas contract gained 25.1¢ to $7.16/MMbtu, with traders expecting a bullish report Aug. 10 on US gas storage. "This past week's weather was extremely hot and marked the hottest week we have experienced season-to-date, with total degree days surpassing the record 102 TDD from 2 weeks ago. Remember that the 102 TDD caused an unprecedented mid-summer withdrawal" of gas from storage, said analysts in the Houston office of Raymond James & Associates Inc.
In London, the September IPE contract for North Sea Brent crude lost 75¢ to $77.55/bbl. The August contract for gas oil continued to climb, however, up by $1.50 to $668.50/tonne.
The average price for OPEC's basket of 11 benchmark crudes gained 52¢ to $72.64/gal on Aug. 8.
Contact Sam Fletcher at [email protected].