Sam Fletcher
Senior Writer
HOUSTON, Sept. 5 -- Crude prices fell Sept. 4 for the fifth consecutive session as the euro dropped to its lowest level against the dollar this year and oil and gas operations in the Gulf of Mexico and along the Gulf Coast began coming back on stream.
"The euro did get under very serious pressure yesterday, erasing any storm premium left in the oil markets," said Olivier Jakob at Petromatrix, Zug, Switzerland. "The dollar index will face another test on the [Sept. 5] release of the US nonfarm payroll. Our dollar index and oil correlation model is showing West Texas Intermediate over-valued by more than $20/bbl, and in the current trend of the dollar index it is becoming harder and harder to see WTI rising back to previous record highs."
Despite earlier predictions that it would take weeks for Entergy Corp., Louisiana's largest utility, to restore power following the hurricane damage in that state, there were reports Sept. 5 that power had been restored to four of the five idled Louisiana (OGJ Online, Sept. 4, 2008). "The refineries will not return to full capacity on day 1, hence physical premium could remain firm for a few more days; however, with the improved cracks when refineries do return they will be producing more products than before the storm. Hence the futures crack should start to find a ceiling and provide less support to the complex," Jakob said.
In New Orleans, analysts at Pritchard Capital Partners LLC said crude futures prices weakened in after-hours electronic trading and were poised early Sept. 5 to post the biggest weekly drop in more than a month. "The front-month contract has shed nearly $9/bbl, or 7.6%, since Aug. 29, after it became clear that the US Gulf Coast oil infrastructure would escape Hurricane Gustav with minimal damage," the analysts said. Refined products also posted sizeable price losses in after-hours trading—"most notably heating oil," which dipped below $3/gal.
In less than 2 months, the front-month contract for reformulated blend stock for oxygenate blending (RBOB) has plunged 92¢ from the record-high $3.63/gal on July 11. "But while RBOB futures continue to deflate, gasoline differentials throughout the US cash market are soaring in the wake of Hurricane Gustav," Pritchard Capital analysts said.
After Gustav
As of midday Sept. 4, the US Minerals Management Service reported workers still had not returned to 527 of the 717 manned platforms and 63 of the 121 mobile rigs in the Gulf of Mexico. MMS said 95.2% of the oil and 87.5% of the natural gas normally produced from federal leases in the gulf remained shut in.
Michael Schmitz, Banc of America Securities LLC, said, "The shut-in production is expected to be at least partially offset by the temporary shut-down of refineries and other industrial plants along the Gulf Coast."
In its final update after the storm, Shell Oil Co. said it redeployed another 220 workers to its operations in the gulf. "There is no significant damage to any of our facilities. All facilities' and wells' structural integrity were not impacted by Hurricane Gustav," Shell officials said. However, they said, "There is light to moderate damage to topsides grating, tubing and control cables at Mars, West Delta 143, and Cognac. Repair plans are under way, production start up at these locations will not commence before next week."
Shell also reported no significant damage to its Gulf Coast pipelines. "We will continue to redeploy crews over the next couple of days to the intermediate pump station platforms that serve our pipelines in the Gulf of Mexico. We are on track to commence delivery of crude oil as offshore production and inland facilities come online," the company said.
Shell is now operating a long segment of the Capline Crude Oil Pipeline System, moving crude already in the system from Liberty, Miss., to the pipeline's termination point in Patoka, Ill. "We plan to restart the remaining parts of Capline in Louisiana over the weekend using a combination of portable generators and local utility power as it comes online. We expect to be running in sync with other systems that feed into Capline as they come online," said company officials.
With some local utility power and portable generators in place, Shell officials said they expect Sept. 5 to energize and test parts of the Houma-to-Houston Crude Oil System. Meanwhile, they said, "Most of our refined products delivery systems are operating or are near operational status, waiting to run in sync with other systems as they come online."
Meanwhile, a small fire at a pump in the heavy oil cracking unit at its Corpus Christi West Plant forced Valero Energy Corp. to take down that unit for repairs. The company said Sept. 5, "We expect this outage to last between 7 and 10 days. During the outage, lost production will be 80,000 b/d of gasoline and 7,500 b/d of distillates," officials said.
Swift Energy Co. reported preliminary inspections showed minimal damage to its operations in Lake Washington, Horseshoe Bayou, Bayou Sale, and Cote Blanche Island fields in south Louisiana. "The Bay de Chene field has experienced structural damage to its production facilities and some production equipment in the field has been damaged or destroyed. The extent of this damage and the cost and timing of repairs is not known at this time," the company said.
Meanwhile, production resumed in the South Bearhead Creek field in Beauregard Parish, Brookeland field in the Texas counties of Jasper and Newton, Masters Creek field in the Louisiana parishes of Vernon and Rapides, Jeanerette field in St. Mary Parish and High Island field in Cameron Parish. Company officials said it may take 2 weeks to assess the possible production level from those fields in the third quarter and necessary adjustments to its full-year production estimates.
Energy prices
The October contract for benchmark US light, sweet crudes fell $1.46 to $107.89/bbl Sept. 4 on the New York Mercantile Exchange. The November contract dropped $1.43 to $108.44/bbl. On the US spot market, WTI at Cushing, Okla., was down $1.46 to $107.89/bbl. Heating oil for October delivery lost 5.51¢ to $3.02/gal on NYMEX. The October RBOB contract declined by 2.64¢ to $2.74/gal.
The October natural gas contract gained 5.8¢ to $7.32/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., advanced 2¢ to $7.25/MMbtu.
In London, the October IPE contract for North Sea Brent crude dropped $1.76 to $106.30/bbl. The September gas oil contract was down $1.75 to $972.75/tonne.
The average price for OPEC's basket of 13 reference crudes lost 5¢ to $103.64/bbl on Sept. 4.
Contact Sam Fletcher at [email protected].
