Sam Fletcher
Senior Writer
HOUSTON, Sept. 17 -- Crude futures prices dipped Sept. 14 from an intraday record high above $80/bbl in the New York market as Tropical Storm Ingrid dissipated and traders focused on possible demand reductions due to the troubled US economy.
"Markets worry about a worsening US economy that could hit demand. Oil analysts predominantly expect a decrease in West Texas Intermediate price this week," said the Société Générale Group in Paris on Sept. 17.
Analysts in the Houston office of Raymond James & Associates Inc. said crude prices were down almost 1% in early trading Sept. 17 as investors locked in profits from last week's gains. "Investors remain cautious leading up to the Federal Reserve's meeting [scheduled Sept. 18]. Most expect the central bank to lower the target [interest] rate by at least one quarter of a percent," they said.
Meanwhile, three refineries in Port Arthur, Tex., were working to restore operations after losing power Sept. 13 when Hurricane Humberto hit the US Gulf Coast in that area:
-- A Shell Oil Co. spokesman said Sept. 17 workers restored power to most of Motiva Enterprises LLC's 285,000 b/d refinery in Port Arthur and have begun the restart sequence.
-- Valero Energy Corp. said full power was restored to its 250,000 b/d refinery on Sept. 14 and that startup was under way. Officials said they expect to return to normal production by the end of this week.
-- Total SA reported partial power was restored to Total Petrochemicals USA's 231,252 b/d refinery late Sept. 13 and that it was expected to be back up within 5 days.
Temporary loss of three refineries earlier fueled market concerns over US fuel stocks, with crude inventories at the lowest level in 8 months and gasoline at the lowest position in 2 years. SGG analysts said crude stocks are still decreasing and that the promised increase of 500,000 b/d in production from the Organization of Petroleum Exporting Countries is not big enough to prevent crude oil stock draws in the fourth quarter.
The larger-than-consensus draw in US crude inventories during the week ended Sept. 7 was due in part to a sharp drop in imports of Mexican oil as a result of Hurricane Dean's disruption of production and shipping in the Bay of Campeche. "The interruptions caused by Humberto will likely impact this week's import figure as well," said Robert S. Morris, Banc of America Securities LLC, New York.
"The OPEC decision to increase output by 500,000 b/d has been so far discounted by the market, but we think that it deserves closer attention when increases from Angola and Iraq are taken in account," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. "The overall OPEC production number for November is still difficult to assess due to maintenance in the UAE, but even with a very conservative outlook on Iraqi supplies, we should have OPEC in December producing 700,000 b/d over December 2006 and in the first quarter of 2008, [an increase of] 850,000 b/d vs. the first quarter of 2007, and this before any increases from Nigeria," he said.
In other news, crude prices are likely to hit $100/bbl by the end of next year as the world's biggest oil producing nations reduce their exports to fuel their own rapidly growing domestic consumption, said Jeff Rubin, chief economist at CIBC World Markets, the wholesale and corporate banking arm of Canadian Imperial Bank of Commerce.
Speaking at the 6th Annual Association for the Study of Peak Oil & Gas conference in Cork, Ireland, Rubin predicted the export capacity of OPEC, Russia, and Mexico will drop by 2.5 million b/d by the end of the decade. "Domestic demand growth of as much as 5%/year in key oil producing countries is already beginning to cannibalize exports and will increasingly do so in the future as production plateaus or declines in many of these countries," he said. "OPEC members together with independent producers Russia and Mexico consume over 12 million b/d, surpassing Western Europe to become the second largest oil market in the world."
Rubin pointed out that consumers in many major oil producing countries pay nothing near the global price for crude. He finds that highly subsidized gasoline prices are often a factor in the surging rates of domestic oil consumption. "In many countries, prices are as little as $10/bbl," he said.
Rubin predicted Canadian oil sands will surpass deepwater wells as the single largest source of new oil exports by the end of this decade.
Energy prices
The October contract for benchmark US light, sweet crudes hit an all-time high of $80.36/bbl in intraday trading Sept. 14 on the New York Mercantile Exchange before late profit taking dropped the closing price to $79.10/bbl, down 99¢ for the day. The November contract fell 69¢ to $78.09/bbl, with subsequent months in backwardation through September 2008. On the US spot market, WTI was down 99¢ to $79.11/bbl. Heating oil for October lost 1.12¢ to $2.21/gal on NYMEX. The October contract for reformulated blend stock for oxygenate blending (RBOB) dipped by 1¢ to $2.04/gal.
However, the October natural gas contract escalated 25¢ to $6.28/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was up 6¢ to $6.29/MMbtu. The gas futures market shrugged off the dissipation of Tropical Storm Ingrid and was up more than 1% in early trading Sept. 17. "Contributing to the rise was news that Pemex [Petroleos Mexicanos, Mexico's national oil company] had to flare up to 25% of its natural gas production due to pipeline attacks last week," said Raymond James analysts.
Raymond James raised its fourth-quarter 2007 natural gas demand forecast but reduced its estimates for 2008. "We expect to see an early winter natural gas rally supported by easy year-over-year weather comparisons. The second half of winter and the remainder of 2008 look much uglier, as increasing US gas supplies, coupled with a surge in LNG imports, should drive US gas prices lower through the summer," they said.
In London, the November IPE contract for North Sea Brent crude fell 90¢ to $76.22/bbl. The October gas oil contract gained $4.75 to $694.50/tonne.
The average price for OPEC's basket of 11 reference crudes declined by 16¢ to $74.48/bbl on Sept. 14. So far this year, OPEC's basket price has averaged $63.08/bbl, up from $61.08/bbl for all of 2006.
Contact Sam Fletcher at [email protected].