MARKET WATCH: Energy prices continue fall as Dean winds down

Energy prices continued to fall Aug. 21 as workers began returning to offshore rigs and platforms in the US sector of the Gulf of Mexico.

Sam Fletcher
Senior Writer

HOUSTON, Aug. 22 -- Energy prices continued to fall Aug. 21 as workers began returning to offshore rigs and platforms in the US sector of the Gulf of Mexico.

"For the first time since July 2, crude oil fell around 2.3% to below $70/bbl," said analysts in the Houston office of Raymond James & Associates Inc. With no storm threats to US production and gas storage on pace to reach record levels this fall, front-month natural gas futures fell 3% to "a 10-month record low," said Raymond James analysts. "Prices plunged once Hurricane Dean missed US oil fields and was downgraded to a Category 1 storm by the US National Hurricane Center," they reported.

However, crude prices were reported to be up in early trading Aug. 22.

Hurricane Dean hit the Yucatan Peninsula in the early hours of Aug. 21 as a Category 5 storm with 165 mph winds gusting to 200 mph. It was the third-most powerful Atlantic hurricane to make landfall since record keeping began in the 1850s. Dean weakened over land to a Category 1 hurricane but was expected to strengthen as it moved over the Bay of Campeche, where Mexico's state-owned Petroleos Mexicanos has 66% of its oil production. Its projected path would take it through Cantarell oil field, Mexico's most productive. Pemex evacuated more than 14,000 workers from 140 offshore facilities and shut in production of 2.65 million b/d of oil and 2.63 bcfd of gas.

The oil city of Ciudad del Carmen was reported 70% flooded. At 7 a.m. CDT Aug. 22, the National Hurricane Center in Miami reported Dean was 100 miles northeast of Veracruz, Mexico, and 325 miles southeast of Brownsville, Tex., with winds of 90 mph and moving west-northwest at 20 mph. It was projected to hit the Mexican mainland in the afternoon near Laguna Verde, Mexico's only nuclear power plant. Meteorologists said hurricane-force winds could extend as far north as La Cruz, Mexico, but would generate little more than heavy surf in Texas.

The US Minerals Management Service reported Aug. 21 that workers were evacuated from 34 of the 834 manned production platforms and 21 of the 101 rigs in the US sector of the gulf, down from 24 evacuated rigs the previous day. Operators shut in 43,881 b/d, or 3.4% of normal crude production and 140 MMcfd, 1.83% of usual gas production from the US sector of the gulf as a result of the storm.

Shell Oil Co. began returning workers to offshore platforms and rigs Aug. 21 and will continue throughout the rest of the week. The company also is bringing back on line the 30,000 b/d of crude and 70 MMcfd of gas that it shut in as a result of Hurricane Dean.

Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, said Aug. 22, "Damage assessment on Dean will be known later today or tomorrow and will not be fully discounted until then (but given Dean came back over Campeche waters with Category 1 strength we think the risk of structural damage is low."

Meanwhile, Jakob said, "The slide in the reformulated blend stock for oxygenate blending (RBOB) futures continued and is posting a cumulative loss of 8.5% [for the September contract] in 2 days. This is keeping the gasoline crack and 3-2-1 margin [between oil, gasoline, and distillate] under pressure and widening the RBOB to heating oil spread back to distillate maximization mode, which will in turn keep a cap on heating oil. Natural gas continued also to lose the hurricane premium and is now [down] 17% in 2 days."

Jakob also noted, "Large [investment] funds are still leveraged on the long side in gasoline, but hurricanes have so far provided no price spike, and we only have 1-2 more weeks before the seasonal drop in gasoline demand."

US inventories
The Energy Information Agency said Aug. 22 that commercial US crude inventories increased 1.9 million bbl to 337.1 million bbl in the week ended Aug. 17. Gasoline stocks continued to decline, down 5.7 million bbl to 196.2 million bbl in the same week, below average for the time of year. Distillate fuel inventories increased 1.3 million bbl to 129 million bbl. Propane and propylene inventories gained 1.7 million bbl to 53.4 million bbl.

Imports of crude into the US increased by 942,000 b/d to 10.8 million b/d during that week. Input of crude into US refineries, however, dipped 56,000 b/d to 15.7 million b/d with refineries operating at 91.6% of capacity. Gasoline production rose slightly to 9.3 million b/d. Distillate fuel production also increased to 4.2 million b/d.

Energy prices
The expiring September contract for benchmark US light, sweet crudes fell by $1.65 to $69.47/bbl Aug. 21 on the New York Mercantile Exchange. The October contract dropped $1.39 to $69.57/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $1.65 to $69.48/bbl. Heating oil for September delivery lost 2.89¢ to $1.97/gal on NYMEX. The September contract for RBOB dropped 7.28¢ to $1.86/gal.

The September gas contract continued to tumble, down 22.3¢ to $5.82/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 52¢ to $5.91/MMbtu.

In London, the October IPE contract for North Sea Brent crude declined $1.16 to $68.69/bbl. Gas oil for September lost $2.25 to $614.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 reference crudes fell 58¢ to $67.11/bbl on Aug. 21.

Contact Sam Fletcher at samf@ogjonline.com.

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