Sam Fletcher
Senior Writer
HOUSTON, Aug. 17 -- Crude and petroleum product prices tumbled Aug. 16 as traders put their weather worries on hold to deal with a rout in the equities market that appears to threaten future energy demand.
"The key word for yesterday was: liquidation. Heavy selling was observed across the commodity board," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. "In such liquidation dynamics, the fundamentals [of supply and demand] take a side-step."
Weather outlook
Meanwhile, Hurricane Dean strengthened into a Category 2 storm before it tore through the eastern Caribbean islands of St. Lucia and Martinique. At 8 a.m. EDT Aug. 17, Dean was centered 50 miles west-southwest of Martinique, heading west toward Jamaica at 23 mph. It is expected to intensify into Category 3 story by the time it reaches the central Caribbean and could be a Category 4 storm when it approaches Mexico's Yucatan Peninsula on Aug. 21. However, it's difficult for meteorologists to predict accurately that far in advance.
"If it hits land over Yucatan it will lose some strength, but history has shown that a hurricane crossing across the Yucatan can quickly regain strength once it steps back into the gulf. Some [computer weather] models also have Dean heading towards Texas once back in the US gulf," Jakob said.
"Look for hurricane fears to bolster natural gas prices in the immediate future as this hurricane moves closer and closer to the Gulf of Mexico," warned analysts in the Houston office of Raymond James & Associates Inc. They reported natural gas prices were "on the run," up nearly 2.5% in premarket trading Aug. 17 on updates of Dean's progress. "Oil was also up 1% premarket, as Hurricane Dean also has the potential to affect Gulf of Mexico oil production, which houses over 25% of US oil output. Hurricane fears seem to have outweighed opposing fears over continued economic weakness, which has depressed oil prices in the past few weeks," they said.
Flooding continued Aug 17 across Texas as the remnants of Tropical Storm Erin pushed into the state. The storm dumped as much as 7 in. of rain in parts of Houston and San Antonio, and some areas in central and southern Texas were bracing Aug. 17 for as much as 10-15 in. of participation. Erin was downgraded to a tropical depression when it made landfall Aug. 16 at Copano Bay, 25 miles northeast of Corpus Christi, Tex.
Refinery mishaps
No disruption of oil and gas production or processing as a result of Erin was reported. However, Valero Energy Corp. said Aug. 16 it experienced a breakdown in the coke handling and shipping system at its 325,000 b/d Port Arthur, Tex., refinery. "The coker will remain on circulation until the problem is resolved, which we expect to happen by the middle of next week. In the meantime, we expect a drop in production of 50,000 b/d of distillates and 70,000 b/d of gasoline," said a company spokesman.
Late that same day, a fire occurred at the No. 2 crude units at Chevron Corp.'s 325,000 b/d refinery at Pascagoula, Miss. Initial reports said a "major portion" of Chevron's biggest US refinery continued to operate. However, there was no immediate word as to the cause, extent of damage, or when the unit may be repaired and brought back on-stream.
Energy prices
The September contract for benchmark US light, sweet crudes rattled between $70.10-73.14/bbl Aug. 16 on the New York Mercantile Exchange before closing at $71/bbl, down $2.33 for the day. The October contract dropped $2.34 to $70.87/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $2.33 to $71.01/bbl. Heating oil for September delivery fell 4.4¢ to $1.98/gal on NYMEX. The September contract for reformulated blend stock for oxygenate blending (RBOB) lost 3.05¢, also to an average $1.98/gal.
The September natural gas contract inched up 1.1¢ to $6.88/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., fell 31¢ to $6.99/MMbtu. The Energy Information Administration reported the injection of 21 bcf of natural gas into US underground storage during the week ended Aug. 10. That was at the low end of the consensus by Wall Street analysts and down from injections of 42 bcf the prior week and 37 bcf during the same period a year ago. US gas storage is now just over 2.9 tcf, up 108 bcf from year-ago levels and 371 bcf above the 5-year average.
"Yesterday's neutral EIA injection number was delayed, and natural gas [on NYMEX] plummeted nearly 50¢…to $6.50[/MMbtu] in the immediate aftermath," said Raymond James analysts. "After the wreckage was cleared, the market corrected itself and ended the day fairly flat."
Analysts at Enerfax Daily said the weekly EIA storage report showed US natural gas inventories remain above the 5-year average and computer models indicate Hurricane Dean may bypass key production areas in the Gulf of Mexico. "Last week traders who had previously bet large inventories would suppress natural gas prices in the long-term began covering those positions before the height of the storm season," Enerfax Daily reported. Meanwhile, the National Oceanic and Atmospheric Administration's Climate Prediction Center is predicting higher-than-normal temperatures for September-November.
In London, the September IPE contract for North Sea Brent crude lost $2.22 to $69.42/bbl. Gas oil for September fell $16.25 to $616.75/tonne
The average price for the Organization of Petroleum Exporting Countries' basket of 11 reference crudes dropped 97¢ to $67.61/bbl on Aug. 16.
Contact Sam Fletcher at [email protected].
