MARKET WATCH: BTC pipeline damage hikes oil prices

Crude prices rebounded Aug. 7 with reports it may take more than 2 weeks to repair the Baku-Tbilisi-Ceyhan pipeline from the Azeri-Chirag Gunashli oil fields to Turkey.

Sam Fletcher
Senior Writer

HOUSTON, Aug. 8 -- Crude prices rebounded Aug. 7 with reports it may take more than 2 weeks to repair the Baku-Tbilisi-Ceyhan pipeline from the Azeri-Chirag Gunashli oil fields to Turkey.

The BTC pipeline was closed Aug. 5 by an explosion and fire at a pump station near Refahiye in eastern Turkey (OGJ Online, Aug. 6, 2008). BP PLC said it reduced production at the fields but didn't give specific numbers. Other sources put the loss at 400,000-600,000 b/d.

"The disruption occurred [to] non-OPEC supply on infrastructure located in an Organization for Economic Cooperation and Development country; furthermore the lost crude oil is a major short-haul supply route to European refiners," said Olivier Jakob at Petromatrix, Zug, Switzerland. It could force the release of strategic petroleum reserves in some European countries, he said.

The incident triggered "some short covering on crude" in world oil markets. But purchases of crude futures "only made the heating oil crack weaker," losing as much as crude gained, said Jakob. "The weakness of the heating oil crack has brought a cap to the crude oil rebound, but the macro trend of the dollar correlation is now also starting to move against a crude oil recovery."

At Pritchard Capital Partners LLC, New Orleans, analysts reported, "After settling above $120/bbl for the first time in 3 days, West Texas Intermediate prices overnight succumbed to fresh selling brought about mostly by a stronger US dollar. BTC pipeline issues and pipeline outages in Nigeria…were lumped together as contributors to crude's higher settlement" on Aug. 7. However, they said, "After hours, sellers fled commodities as the dollar climbed, pushing crude oil below $118/bbl."

Meanwhile, the chief executive of Alon USA Energy Inc. said repair of damages from a February fire at the company's 70,000 b/d refinery in Big Spring, Tex., should be completed by the end of August, a month later than previously expected.

Royal Dutch Shell PLC said repairs continued on a major Nigerian crude pipeline that was sabotaged July 28 by militants.

Energy prices
The September contract for benchmark US sweet, light crudes regained $1.44 to $120.02/bbl Aug. 7 on the New York Mercantile Exchange. The October contract increased $1.34 to $119.78/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $1.44 to $120.02/bbl. Heating oil for August dipped by 0.43¢ to $3.23/gal on NYMEX. The September contract for reformulated blend stock for oxygenate blending (RBOB) increased 5.34¢ to $3/gal.

The September natural gas contract dropped 20.2¢ to $8.53/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 5¢ to $8.74/MMbtu.

In London, the September IPE contract for North Sea Brent advanced 86¢ to $117.86/bbl. The August contract for gas oil increased for the first time in many sessions, up $9 to $1,057/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 13 benchmark crudes gained 44¢ to $115.08/bbl on Aug. 7.

Contact Sam Fletcher at samf@ogjonline.com.

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