MARKET WATCHCrude prices dip as OPEC predicts lower demand

Sept. 16, 2005
Crude futures prices declined Sept. 15 as the Organization of Petroleum Exporting Countries reduced its forecasts for growth in world oil demand, citing weak growth in the first half of this year and recently record-high prices.

Sam Fletcher
Senior Writer

HOUSTON, Sept. 16 -- Crude futures prices declined Sept. 15 as the Organization of Petroleum Exporting Countries reduced its forecasts for growth in world oil demand, citing weak growth in the first half of this year and recently record-high prices.

OPEC lowered its estimates by 200,000 b/d to a world demand growth of 1.4 million b/d to an average 83.5 million b/d in 2005, followed by demand growth of 1.5 million b/d to 85 million b/d in 2006.

OPEC members said their crude production should average 28.9 million b/d in 2005, up by 600,000 b/d from 2004 but down by 100,000 b/d from earlier projections. Non-OPEC production is expected to average 50.4 million b/d, again up by 600,000 b/d from a year ago following a downward revision of 100,000 b/d in last month's figures.

Storm damage
The OPEC report rolled back sharp gains earlier in the Sept. 15 session based on indications of severe disruptions by Hurricane Katrina of Gulf Coast oil and gas production and processing.

The US Minerals Management Service said Sept. 15 that 2 rigs and 84 platforms remain evacuated in the Gulf of Mexico, with 842,091 b/d of crude and 3.4 bcfd of natural gas production still shut in. Cumulative offshore production lost since Aug. 26 totaled 22.4 million bbl of oil and 102.4 bcf of natural gas.

Enbridge Inc., Calgary, said Sept. 15 that three of the five pipeline corridors in the Gulf of Mexico in which it has interests—Stingray, Garden Banks, and Green Canyon—are back in service delivering natural gas volumes at close to prehurricane levels. "Lack of communications, which was a major problem immediately after the hurricane hit, was quickly rectified as telecommunications for the offshore pipeline control systems were switched to satellite channels to restore connections to the company's natural gas control center in Houston," officials said.

However, they said, "The Mississippi Canyon corridor, which was in the direct path of the hurricane, is still not operating. Pipeline inspections, including a pipeline integrity test using an underwater side-scan sonar, will be conducted within a week to check for abnormalities."

The company said it's working on contingency plans for Mississippi Canyon flows to bypass the Venice processing plant in southeast Louisiana, "should the damaged production platforms complete repairs and resume deliveries before the repair of the Venice processing facility."

Workers had no estimate as to how long it might take to repair the processing plant and connecting pipelines.

Although the Destin corridor, operated by Enbridge's joint venture partner BP PLC, received minimal or no damage, officials said, "Few volumes other than flows from interconnected onshore storage are moving on the corridor as downstream oil and natural gas liquids pipeline facilities owned by others experienced damage and are not operational."

Enbridge is now transporting only half of the 2.7 bcfd of natural gas that that it previously delivered from the Gulf of Mexico prior to Hurricane Katrina, "including some gas nominated from onshore storage connected to the Destin corridor."

Five of Enbridge Energy Partners LP's smaller onshore systems on the Gulf Coast also were affected by the storm. Workers are assessing damage to the Gloria and Chalmette pipeline systems in Plaquemines and St. Bernard parishes in south Louisiana, and the company cannot predict how long those systems will be out of service.

Enbrige's propylene pipeline in Jefferson, Plaquemines, and St. Bernard parishes will remain out of service until ExxonMobil Corp.'s Chalmette refinery is back online, officials said. Meanwhile, the processing plant in Bazor Ridge, Miss., has restarted operations and is expected to be full capacity Sept. 16, said Enbridge.

Elsewhere, Valero Energy Corp. said Sept. 15 that its 84,000 b/d Wilmington, Calif., refinery "continues to be impaired by lack of utilities from a third-party provider" after it safely shut down Sept. 12 because of total power failure.

However, workers had reactivated the first crude and coker units and anticipated having the FCC operational soon. "We continue to work on the second crude and coker train and expect start-up within the next 3-4 days," said a company representative.

Energy prices
The October contract for benchmark US light, sweet crudes dropped 34¢ to $64.75/bbl Sept. 15 on the New York Mercantile Exchange. The November contract lost 48¢ to $65.25/bbl. Subsequent monthly crude contracts remained in contango with progressively higher prices through April.

On the US spot market, West Texas Intermediate at Cushing, Okla., was down by 34¢ to $64.76/bbl. Gasoline for October delivery plunged by 3.86¢ to $1.90/gal on NYMEX, while heating oil for the same month declined by 1.29¢ to $1.91/gal. All of the commodities managed to hang onto much of their gains from the previous session, however.

Meanwhile, the October natural gas contract continued to climb, up 17¢ to $11.34/MMbtu "on reports that Hurricane Katrina damaged more gas processing capabilities than initially feared and from the National Hurricane Center report of another tropical storm in the Atlantic," said analysts from Enerfax Daily.

In London, the October contract for North Sea Brent crude lost 21¢ to $63.16/bbl on the International Petroleum Exchange. However, the October contract for gas oil inched up by 25¢ to $591.25/tonne.

The average price for OPEC's basket of 11 benchmark crudes escalated by $1.25 to $57.53/bbl on Sept. 15.

Contact Sam Fletcher at [email protected]