MARKET WATCH: Oil prices climb as storm strengthens

Sept. 21, 2007
Benchmark US crude prices again soared to new record highs on the New York commodity market Sept. 20 with a possible tropical storm building in the eastern Gulf of Mexico.

Sam Fletcher
Senior Writer

HOUSTON, Sept. 21 -- Benchmark US crude prices again soared to new record highs on the New York commodity market Sept. 20 with a possible tropical storm building in the eastern Gulf of Mexico.

A broad low-pressure system strengthened into a subtropical depression over gulf waters 45 miles southwest of Apalachicola, Fla., and 185 miles southeast of Mobile, Ala. It was moving northwest at 8 mph with maximum sustained winds near 35 mph at 11 a.m. EDT Sept. 21. Meteorologists expect it to strengthen into Tropical Storm Jerry before the day is through. A tropical storm warning was issued from Apalachicola to the mouth of the Mississippi River, encompassing New Orleans, Lake Pontchartrain, and the coast lines of Alabama, Mississippi, and eastern Louisiana.

As of noon Sept. 20, the US Minerals Management Service reported offshore workers were evacuated from 5 of the 834 production platforms and 3 of the 89 mobile rigs in the Gulf of Mexico. MMS officials said 360,169 b/d of oil, or 27.7% of normal production, have been shut in. Offshore operators also shut in 1.288 bcfd of natural gas, 16.7% of normal production from federal waters in the gulf.

Crude prices are being supported by the threat of a storm in the gulf, but the natural gas market seems to be focused instead on the buildup of US gas in underground storage, "which is fast approaching last year's bloated summer-ending levels," said analysts in the Houston offices of Raymond James & Associates Inc. "Gas was down 3% yesterday and is trading down 3% this morning," they reported Sept. 21.

Although crude prices have rallied steadily over the past month, gasoline prices have not moved as high or as quickly in the same time period. Raymond James analysts cite three reasons for this:

-- The decline in gasoline demand with US exiting the summer driving season.

-- The use of ethanol as a gasoline additive. Ethanol prices have dropped 30% in recent months.

-- Gasoline imports remain at a healthy level.

However, they said, "If crude prices continue their upward trajectory, gasoline prices will inevitably follow. Also, the recently lowered interest rates should help in spurring economic growth, resulting in an increase in gasoline demand. Furthermore, with gasoline supplies still at historical low levels, any supply disruption has the ability to meaningfully pushed prices higher."

Meanwhile, Shell Oil Co. reported that, after being temporary shut down by electric utility outages in the area, Motiva Enterprises LLC's 285,000 b/d refinery in Port Arthur "has started to make some product again." Officials said the facility will continue "safely and methodically" to increase production in the next few days.

Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, noted that the US National Weather Service's latest 3-month outlook for temperatures calls for above normal readings over much of the US and more specifically in the Northeast.

On the international front, Jakob said, "Major Powers should start to discuss today in Washington the potential for more sanctions on Iran. While we expect the Russians and Chinese to continue to oppose new sanctions, it should make for more geopolitical sound bites. And this should continue into next week as the world leaders are gathering in New York for the United Nations general assembly," he said.

Energy prices
The October contract for benchmark US light, sweet crudes topped out at $84.10/bbl in intraday trade Sept. 20 on the New York Mercantile Exchange. The contract closed at a record $83.32/bbl, up $1.39 for the day. The November contract gained 93¢ to $81.78/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $1.39 to $83.33/bbl. Heating oil for October delivery increased by 1.56¢ to $2.26/gal on NYMEX. The October contract for reformulated blend stock for oxygenate blending (RBOB) advanced by 4.17¢ to $2.14/gal.

The October natural gas contract dropped 17.2¢to $6.01/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 26¢ to $6.02/MMbtu.

In London, the November IPE contract for North Sea Brent crude escalated by 62¢ to $79.09/bbl. The October gas oil gained $4 to $662.75/tonne

The average price for the Organization of Petroleum Exporting Countries' basket of 11 reference crudes increased 17¢ to $75.78/bbl on Sept. 20

Contact Sam Fletcher at [email protected].