Sam Fletcher
Senior Writer
HOUSTON, Sept. 26 -- Energy prices rebounded Sept. 25 among investors' fears that the $700 billion economic rescue plan being hammered out in Washington could weaken the US dollar, the currency in which oil is traded internationally.
With the economy in apparent decline, traders also worried that energy demand will fall in the US and around the globe.
The dollar held its own against the euro and gained some over the yen Sept. 25. Meanwhile, federal regulators seized Washington Mutual Inc. in the largest bank failure in US history and overnight made a deal to sell Washington Mutual's (WaMu) $307 billion in assets and $188 billion in deposits to J.P. Morgan Chase & Co. That is expected to have a major influence on today's markets.
"Investors are also closely watching the bailout discussions in Washington, which will resume this morning," said analysts in the Houston office of Raymond James & Associates Inc.
Olivier Jakob at Petromatrix, Zug, Switzerland, said, "The Washington soap opera is taking so much of traders' attention that market liquidity is coming off." He noted that trading volume was "relatively low" Sept. 24 in the New York market despite the release that day of the latest Department of Energy report on US inventories. "Open interest continues to decline to new lows for the year and soon to new lows for 2 years," Jakob said. "All the main commodities are in a declining trend of open interest. With so much public outrage on the Wall Street bailout, we see little chance that the commodity futures market will be able to escape a regulatory change, and the more commodity prices increase, the more immediate the risk becomes."
Nonetheless, the financial rescue plan in Washington "seemed to be a done deal until the candidates [Sen. John McCain (R-Ariz.) and Sen. Barack Obama (D-Ill.)] invited themselves to the show," said Jakob. "The easiest way to become an overnight leader is to break a deal and then become the savior of it. The latest political debacle will not help consumer sentiment."
Even if the plan is passed, it will do nothing to improve oil demand. "This plan is a rescue plan to prevent a collapse of the financial system and not a plan to boost the economy," Jakob said. "The rescue plan's impact on the economy will be a lengthy process and will not immediately put the US driver back on the road."
Gas outlook
The Energy Information Administration reported the injection of 51 bcf of natural gas into US underground storage during the week ended Sept. 19. That put the amount of working gas in storage at just over 3 tcf. That is 162 bcf less than in the same period last year but 35 bcf above the 5-year average.
"This week's lower-than-expected injection is likely due to dislocations from Hurricane Ike rather than any significant shift in supply-demand fundamentals," said Michael Schmitz, Banc of America Securities LLC. Most gas production from the Gulf of Mexico remains shut in. Schmitz said, "Additional natural gas production has also been shut in onshore Texas due to damage, including damage to natural gas processing plants."
However, he said, "Shut-in production is partially offset by the temporary shutdown of refineries and other industrial plants along with power outages."
Storm update
The US Minerals Management Service reported 179 of the 694 manned platforms and 3 of the 116 mobile rigs operating in the US sector of the Gulf of Mexico were still without crews as of midday Sept. 25, apparently unchanged from the previous day. Still, production increased. Officials said 59.3 % of the oil and 56.4 % of the gas usually produced from offshore federal leases are still shut in.
The Department of Energy said 4 refineries (total capacity of 945,500 b/d) remain shut down as a result of Hurricane Ike, while another 14 refineries (total capacity of 3.47 million b/d) are running at reduced rates. Officials said 13 natural gas processing plants (total capacity of 6.33 bcfd) are operating at reduced levels or can restart when power is restored. Currently 4% of Texas remains without electrical power.
Because of storm disruptions, Shell Oil Co. and Motiva Enterprises LLC (a Shell-Saudi Aramco joint venture) will defer some turnaround maintenance activities planned for the third quarter at some Gulf Coast sites. "This will allow our employees and contractor staff time to recover from the intense efforts associated with the recovery efforts and to deal with personal impacts from the storm. It also will help address customer demand as we rebuild finished product inventories," officials said.
DOE delivered 150,000 bbl of crude from Strategic Petroleum Reserves oil to Alon USA Energy Inc. and another 500,000 bbl to Citgo Petroleum Corp.; so far 3.94 million bbl of oil has been released from SPR in the wake of Hurricane Ike.
Energy prices
The November contract for benchmark US light, sweet crudes rebounded Sept. 25, up $2.29 to $108.02/bbl on the New York Mercantile Exchange. The December contract gained $2.19 to $107.21/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $1.29 to $108.02/bbl. Heating oil for October continued to climb, up 1.25¢ to $3.03/gal on NYMEX. The October contract for reformulated blend stock for oxygenate blending jumped 10.26¢ to $2.70/gal.
Natural gas for the same month increased by 4.5¢ to $7.72/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 43¢ to $7.58/MMbtu.
In London, the November IPE contract for North Sea Brent crude rose by $2.15 to $104.60/bbl. The October gas oil contract fell $18.25 to $968/tonne, wiping out the $17 gain in the previous session.
The average price for the Organization of Petroleum Exporting Countries' basket of 13 reference crudes lost $1.20 to $97.68/bbl on Sept. 25.
Contact Sam Fletcher at [email protected].
