MARKET WATCHDiminished demand undermines energy prices

Oct. 17, 2005
Crude futures prices declined Oct. 14 on fears of diminished demand yet finished up by more than 1% for the week on the New York market.

Sam Fletcher
Senior Writer

HOUSTON, Oct. 16 -- Crude futures prices declined Oct. 14 on fears of diminished demand yet finished up by more than 1% for the week on the New York market.

"Even though crude inventories rose less than expected and product inventories declined more than consensus [among Wall Street analysts], the continued slowdown in demand—gasoline demand fell 2.4% for the trailing 4-week period compared to 1 year ago—gained the upper hand in weighing on oil prices," said Robert S. Morris at Banc of America Securities LLC, New York.

The larger-than-expected injection of 58 bcf of natural gas into US underground storage reported last week "was more likely due to the resumption of production in state waters and onshore in the Gulf Coast, both of which are not included in the Minerals Management Service's estimate of shut-in volumes, as opposed to any real increase in 'backed-out' demand," he said. "Otherwise, natural gas customers are facing a nearly 50%, or more, increase in their heating bills this winter."

Slow recovery
The Louisiana Office of Conservation is still trying to assess the status of producing wells in 38 parishes but has not received any information on 26.9% of the oil and gas wells in that region. As of Oct. 14, the office received reports indicating production of 756.6 MMcfd of natural gas from wells onshore or in state waters was restored, while 2,840, or 47.7%, of the wells remain shut-in. Prior to Hurricanes Katrina and Rita, production from the 38 parishes was estimated at 2.2 bcfd.

Crews have not returned to 2 rigs and 232 platforms in the Gulf of Mexico, MMS reported Oct. 14. That last number represents 28.3% of the normally manned platforms in the gulf. Shut-in production totaled more than 1 million b/d, or 56.5%, of offshore crude and 5.6 bcfd, or 56.5%, of natural gas from the gulf. Cumulative production lost from the Gulf of Mexico since Aug. 26 now stands at 57.6 million bbl of crude and 288.9 bcf of natural gas, which is equivalent to 10.5% of the crude and 7.9% of the natural gas produced annually in those waters.

In its latest report, the Department of Energy said 1.6 million b/d of refining capacity remained shut down along the Gulf Coast. Several refineries were in the process of restarting, said DOE officials, including Citgo Petroleum Corp. in Lake Charles, La., 324,300 b/d; ConocoPhillips, West Lake, La., 239,400 b/d; and Valero Energy Corp., Port Arthur, Tex., 255,000 b/d. ExxonMobil Corp.'s 348,500 b/d refinery in Beaumont, Tex., and Motiva Enterprises LLC's 285,000 b/d facility in Port Arthur were attempting to restart, DOE said. BP PLC's 437,000 b/d Texas City refinery near Houston is expected to restart in late October or early November.

Three refineries were reported operating at reduced rates on Oct. 14, including Shell Oil Co., Deer Park, Tex., 333,700 b/d; Lyondell Chemical Co.-Citgo joint venture, Houston, 270,200 b/d; and Valero, Houston, 83,000 b/d.

On Oct. 17, however, Shell reported that its Deer Park facility had resumed operations at normal rates. At the adjacent petrochemical plant, an olefins unit was shut down for maintenance after restart.

Of three refineries knocked out by Hurricane Katrina, Chevron Corp.'s 325,000 b/d facility in Pascagoula, Miss., restarted Oct. 6 and is expected to be back to normal production by late October. ExxonMobil's 187,000 b/d facility in Chalmette, La., and Murphy Oil Corp.'s 125,000 b/d refinery in Meraux, La., have partial power now.

Explorer Pipeline expects its Lake Charles origination point to be operational within days. Colonial Pipeline said Oct. 13 that commercial power was restored to all Colonial facilities, allowing its gasoline and distillate mainlines to operate at full rates subject to product availability.

Energy prices
The November contract for benchmark US light, sweet crudes lost 45¢ to $62.63/bbl, while the December contract fell 62¢ to $61.99/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down by 45¢ to $62.64/bbl. Heating oil for November delivery dropped 4.69¢ to $1.95/gal on NYMEX. Gasoline for the same month dipped by 0.93¢ to $1.749/gal.

However, the November natural gas contract gained 11.6¢ to $13.22/MMbtu on NYMEX, as short covering by traders with excess sales contracts ahead of the weekend offset a soft spot market and forecasts of mild weather, said analysts at Enerfax Daily.

In London, the November contract for North Sea Brent crude fell by 79¢ to $59.35/bbl on the International Petroleum Exchange. Gas oil for November dropped $23 to $582.75/tonne.

Contact Sam Fletcher at [email protected].