MARKET WATCHCrude futures prices continue to slip

Oct. 4, 2005
Futures prices for crude and petroleum products continued to slip Oct. 3 as more refining capacity came back on stream.

Sam Fletcher
Senior Writer

HOUSTON, Oct. 4 -- Futures prices for crude and petroleum products continued to slip Oct. 3 as more refining capacity came back on stream and the US Department of Energy and the Paris-based International Energy Agency said they're willing to put more emergency supplies into the market.

Over the weekend, one of two power lines was restored to ExxonMobil Corp.'s 348,500 b/d refinery in Beaumont, Tex. That leaves seven refineries shut down by Rita in Texas and the Lake Charles, La., area and four offline in the New Orleans region because of Katrina—a cumulative loss of some 3 million b/d of refining capacity, said DOE officials.

Lyondell Chemical Co. said all of its Texas Gulf Coast ethylene, propylene oxide, and refining facilities, as well as the majority of its derivative facilities, have safely resumed operations. Lyondell-Citgo Refining LP said its 268,850-b/d Houston refinery resumed operation last week at 50% capacity and is expected to continue in that range for several weeks because of equipment problems encountered during start-up.

Sunoco Logistics Partners LP began shipping crude out of its Nederland, Tex., terminal on two key pipelines Oct. 1, utilizing onsite generators. The local power company expects to restore commercial power to the facility shortly, at which time all local pipelines are expected to resume normal throughput. Three of the terminal's docks are now ready to receive vessels, and repair of the other four is expected to be completed Oct. 8. The Sabine-Neches waterway is tentatively scheduled to reopen to inbound vessels by midweek.

The Nederland Terminal on that waterway between Beaumont and Port Arthur is one of the largest onshore crude oil facilities in the US with a storage capacity of 12.5 million bbl. It is connected to several pipelines transporting crude and petroleum products to refineries along the Texas Gulf Coast and in the Midwest.

Recovery of oil and gas production in the Gulf of Mexico is proceeding slowly, however. The US Minerals Management Service said crews still have not returned to 399 platforms and 24 rigs in the Gulf of Mexico and that 1.4 million b/d of crude and 7.5 bcfd of natural gas production remain shut in as of Oct. 3. That's the equivalent of 92.8% of the crude and 74.95% of the natural gas normally produced in those waters.

Cumulative gulf production lost since Aug. 26 now totals 45.1 million bbl of crude and 219.6 bcf of natural gas. That amounts to 8.2% of the annual crude production and more than 6% of the annual natural gas production from the gulf, said MMS.

Service industry impacted
In addition to the losses suffered by offshore producers, back-to-back Hurricanes Katrina and Rita hurt the oil field service industry. "Revenue lost as a result of the two hurricanes will likely range between $25 million and $30 million for the most exposed companies such as Halliburton [Co.] and Weatherford [International Ltd.]," said James K. Wicklund, a service industry analyst in the Houston office of Banc of America Securities LLC. "Weatherford had 23 facilities impacted by Hurricane Katrina. Four were manufacturing facilities that were nonoperational for a week to 10 days, and one was completely destroyed."

Wicklund said, "While reports are preliminary, it is estimated that as many as nine jack ups, or about 10% of the active [Gulf of Mexico] fleet prior to the arrival of the hurricanes, were likely destroyed." Several floating rigs also are expected to be offline for several weeks (OGJ Online, Oct. 3, 2005).

"Even today, there is little revenue being generated from drilling and production activities in the Gulf of Mexico as damage assessments, repairs, and personnel relocation activities are ongoing," he said.

Energy prices
The November contract for benchmark US sweet, light crudes dropped 77¢ to $65.47/bbl Oct. 3 on the New York Mercantile Exchange. The December contract fell by 94¢ to $65.29/bbl. On the US spot market, West Texas Intermediate was down by 77¢ to $65.48/bbl. Heating oil for November delivery plunged by 4.87¢ to $2.08/gal on NYMEX. Gasoline for the same month lost 3.46¢ to $2.06/gal.

The November natural gas contract climbed by 9.6¢ to $14.02/MMbtu, however, "underpinned by warm weather over much of the nation this week and concerns about damage to Gulf Coast natural gas production after the recent hurricanes," said analysts at Enerfax Daily.

Traders estimate that 10-20 bcf/week of US demand for natural gas was destroyed by the storms, partly offsetting supply reductions, the analysts said. However, they noted, the latest National Weather Service forecast calls for above-normal temperatures for most of the US in the coming week.

In London, the November contract for North Sea Brent crude declined by 68¢ to $62.80/bbl on the International Petroleum Exchange. But gas oil for October increased by $1 to $627.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes inched up by 9¢ to $58.11/bbl on Oct. 3.

Contact Sam Fletcher at [email protected].