HOUSTON, June 5 -- Disruptions at US refineries and the kidnapping of foreign oil workers in Nigeria helped jack up crude futures prices above $72/bbl June 2, ending a 2-day market decline in the New York market.
On June 4, militants released the eight hostages—six Britons, a US citizen, and a Canadian—who were kidnapped June 2 from the Bulford Dolphin semisubmersible off Nigeria, days after a well drilled by the rig was confirmed to be a gas discovery (OGJ Online, June 2, 2006). The men appeared to be in good health, and officials would not say whether a ransom was paid.
Valero Energy Corp. sustained "significant damage" June 1 from a lightning strike to the dock at its 340,000-b/d Corpus Christi, Tex., refinery that started a fire in a wastewater storage tank. The refinery subsequently reduced its gasoline production by 50,000 b/d and distillate production by 20,000 b/d. Although repairs are to continue this week, Valero officials said June 2 they worked through a number of logistical constraints and would begin "ramping up to planned rates" within 24 hr.
Temporary production cuts due to flooding and loss of steam also were reported at Citgo Petroleum Corp.'s 157,000-b/d refinery and Flint Hills Resources LP's 300,000-b/d refinery in Corpus Christi following severe thunderstorms in that area.
A lightning strike June 2 on a plant transformer at Valero's 210,000-b/d Delaware City refinery in Delaware caused several units to trip or cut back due to reduction of plant instrument air and steam production. Despite some electrical damage, repairs were under way immediately, and the mishap was not expected to have a material impact on production, officials said.
Meanwhile, Valero is in the process of making "critically needed reactor repairs and catalyst reloading" at its 51,000 b/d reformer at its 295,000-b/d Port Arthur, Tex., refinery. That work has reduced gasoline production by 50,000 b/d and should take 10 more days to complete, said company officials on June 2.
"Oil prices started out the week on the upswing after it was reported that China's apparent demand for oil surged nearly 11% year-over-year in April after an increase in government-set fuel prices encouraged refiners to boost utilization and throughput," said Robert S. Morris, Banc of America Securities LLC, New York. "Oil prices subsequently retreated though after the US, in a major policy shift, stated that it would join European allies in talks with Iran if it suspended its uranium enrichment program."
The US, UK, Germany, France, China, and Russia were to outline this week economic incentives to entice Iran to abandon its program to enrich uranium. Otherwise, economic sanctions are likely. Ayatollah Ali Khamenei, the Iranian supreme leader, again threatened a global shortfall of oil if Iran is penalized for its nuclear program. Moreover, he "specifically referred not only to Iran's own supplies, but also to oil shipments passing through the Persian Gulf through the strategic Strait of Hormuz," said analysts in the Houston office of Raymond James & Associates Inc.
The near-month contract for benchmark US crudes has spent 2 weeks at $70-72/bbl on the New York Mercantile Exchange. "On the upside it has been capped by perceived easier geopolitics following the [US] proposals [to participate in negotiations with Iran] and by producer hedging. On the downside it has been supported by buyers taking an option on summer disruptions and a weak dollar," said analysts at Petromatrix GMBH, Zug, Switzerland, in a June 5 report. "We are not yet back to the record highs but getting closer, and our open interest model now suggests a crude market which is underpriced by $2/bbl," based on Friday's close.
The July contract for benchmark US light, sweet crudes jumped by $1.99 to $72.33/bbl June 2 on NYMEX. The August contract gained $1.80 to $73.03/bbl. Gasoline for July delivery pushed up by 7.03¢ to $2.20/gal. Heating oil for the same month increased by 4.38¢ to $2.01/gal.
The July natural gas contract escalated by 17.5¢ to $6.62/MMbtu. "Natural gas has moved up steadily for the past 4 days from a sub-$6 to mid-$6 range," said Raymond James analysts in Houston. "Though still early to call it a secular up trend, we do feel that gas has shown a resilient floor around $6/MMbtu and allowed E&P companies to generate above-average returns in most operating areas. The increase is likely driven by the marked decrease in noncommercial short contracts."
In London, the July IPE contract for North Sea Brent crude gained $1.64 to $71.03/bbl. The June contract for gas oil inched up by 25¢ to $627.75/tonne.
The headquarters for the Organization of Petroleum Exporting Countries in Vienna closed June 5 for a holiday, so no update was available on the price for the OPEC basket of 11 benchmark crudes.
Contact Sam Fletcher at [email protected].