MARKET WATCH'Light' storm damage reduces crude prices

July 14, 2005
Crude futures prices declined July 13 as the US Minerals Management Service reported "extremely light" damage from Hurricane Dennis to oil and gas facilities in the Gulf of Mexico.

Sam Fletcher
Senior Writer

HOUSTON, July 14 -- Crude futures prices declined July 13 as the US Minerals Management Service reported "extremely light" damage from Hurricane Dennis to oil and gas facilities in the Gulf of Mexico.

However, crude prices remained just above $60/bbl in the New York market as the season's second hurricane, Emily, roared through the Caribbean. It is the latest of five tropical systems that developed in the Atlantic in the first 6 weeks of the 2005 hurricane season, which covers June 1-Nov. 30.

Classed as category 1 on the Saffir-Simpson strength scale, with sustained winds of 90 mph, Emily was 85 miles west-northwest of Grenada and headed toward the northern coast of Venezuela early on July 14, said the National Hurricane Center in Miami.

Storm effects
Dennis came ashore July 10 in the Florida panhandle as a category 3 hurricane, down from its earlier category 4 rating. Forecasters said it was the strongest hurricane ever recorded in the Caribbean basin this early in the season. But in the deep waters of the Gulf of Mexico, said MMS officials, Dennis passed 120 miles farther east than Hurricane Ivan that caused extensive damage to offshore oil and gas facilities in September 2004.

Dennis' path "carried it mostly over open water with no oil and gas operations," officials said. Damage to offshore rigs and platforms was "minimal." MMS officials said they received "a very small number" of reports of damage to infield flowlines, but no reported damage to pipelines.

As of July 13, MMS officials said, only four offshore platforms and two rigs remained evacuated in the gulf, with 231,789 b/d of crude and just over 1 bcfd of natural gas still shut in. The cumulative loss of production through July 8-13 totaled 5.2 million bbl of oil and over 23 bcf of natural gas.

The semisubmersible platform in the Thunder Horse field on Mississippi Canyon Block 778, 150 miles southeast of New Orleans, was found listing 20° after Hurricane Dennis passed through the area, but MMS said no link has been established with that storm and an investigation is in process. Meanwhile, workers have reboarded the platform and established power on the facility. Crews are now focusing their efforts on pumping operations in order to right the vessel.

Thunder Horse is operated by BP PLC, with a 75% working interest. ExxonMobil Corp. owns the remaining 25%.

Energy prices
The August contract for benchmark US sweet, light crudes dropped 61¢ to $60.01/bbl July 13 on the New York Mercantile Exchange. The September contract lost 63¢ to $60.85/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down by 61¢ to $60.02/bbl. Heating oil for August delivery retreated by 3.36¢ to $1.72/gal. Gasoline for the same month declined by 2.12¢ to $1.75/gal.

The August natural gas contract continued to climb, however, up by 1.5¢ to $7.90/MMbtu, among concerns over Hurricane Emily and US storage. The Energy Information Administration reported on July 14 that 94 bcf of natural gas was injected into US underground natural gas storage during the week ended July 8. That was up from 63 bcf the previous week but down from 108 bcf in the same period a year ago. The injection was higher than the consensus among Wall Street analysts. US gas storage now sands at nearly 2.3 tcf, up by 140 bcf from the same time last year and 238 bcf above the 5-year average.

On July 14, UBS Securities LLC, New York, raised its average composite spot natural gas price forecasts by 50¢ to $6.50/MMbtu for 2006 and by 75¢ to $6/MMbtu in 2007, as a result of higher oil prices. "Natural gas prices have been strongly correlated to crude oil prices in 2005," said Ronald J. Barone, UBS analyst.

"We are also raising our normalized natural gas price forecast to $5.75/MMbtu, from $5.25/MMbtu. We believe this higher level is necessary to incentivize producers and enable them to earn a 10% return on capital employed, given a forecasted 10%-plus increase in per unit lifting [and] finding and development costs and rising merger and acquisition valuations (roughly $2/Mcfe)," he said.

In London, the August contract for North Sea Brent crude lost 55¢ to $58.27/bbl on the International Petroleum Exchange.

However, the average price of the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes increased by 22¢ to $54.53/bbl.

Contact Sam Fletcher at [email protected]