MARKET WATCH: Refinery mishaps push up energy prices

Crude prices rebounded July 10 amid speculation that US gasoline production will be slowed by unexpected refinery shutdowns.

Jul 11th, 2007

Sam Fletcher
Senior Writer

HOUSTON, July 11 -- Crude prices rebounded July 10 amid speculation that US gasoline production will be slowed by unexpected refinery shutdowns.

BP PLC was forced this week to shut down a 250,000 b/d oil processing unit at its 410,000 b/d refinery in Whiting, Ind. On July 1, Coffeyville Resources LLC's 110,000 b/d refinery in Coffeyville, Kan., was flooded (OGJ Online, July 10, 2007).

"Current high oil prices are not in any way related to crude supplies," said Abdalla Salem El-Badri, secretary general of the Organization of Petroleum Exporting Countries, in a July 11 press release. "Inadequate refinery capacity, ongoing glitches in US refinery operations, geopolitical tensions, and increased speculation in the futures market are, however, driving high oil prices. So even if OPEC were to supply the market with additional crude at this time, these refinery-related problems mean that any extra barrels would not be refined into products."

In a separate report, Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, said, "The speculative funds have managed to save the positive momentum yesterday and they should try to keep it again today." Data showing large investments by speculative funds "confirmed a typical pattern of speculative massaging to push for a technical break of the resistance" to higher oil futures prices, Jakob said. "As long as West Texas Intermediate is maintained above $72/bbl, we should expect the speculative funds to use any positive numbers in the weekly report [from the International Energy Agency in Paris] to massage again a break of $73/bbl using the post-statistics trading vacuum."

Meanwhile, the Popular Revolutionary Army, a little-known leftist rebel group in Mexico, claimed responsibility for four recent attacks on oil pipelines in that country. An explosion July 10 forced the evacuation of people near the town of Coroneo in central Mexico and shut down a pipeline that extends from Mexico City to Guadalajara. Three other explosions last week disrupted oil transportation in Mexico but did not affect oil exports, said representatives of state-owned Petroleos Mexicanos.

US inventories
On July 11, the Energy Information Administration reported commercial US crude inventories declined by 1.4 million bbl to 352.6 million bbl during the week ended July 6. Gasoline inventories increased 1.2 million bbl to 205.6 million bbl in the same period, still below average for the time of year. "The increase was due to an increase in gasoline blending components, as finished gasoline inventories fell," EIA officials said. Distillate fuel stocks gained 800,000 bbl to 122.4 million bbl. Propane and propylene inventories were up 2.4 million bbl to 46.3 million bbl.

Imports of crude into the US dropped by 753,000 b/d to 10 million b/d during that same period. The input of crude into US refineries increased by 17,000 b/d to 15.6 million b/d, with refineries operating at 90.2% of capacity. However, gasoline production dropped to 9.2 million b/d while distillate fuel production remained flat at 4 million b/d.

Energy prices
On July 10, the August contract for benchmark US light, sweet crudes regained 62¢—the exact amount lost in the previous session—to settle at $72.81/bbl after trading as high as $73.08/bbl during the day on the New York Mercantile Exchange. The September contract rebounded by 58¢ to $73.19/bbl.

On the US spot market, West Texas Intermediate at Cushing, Okla., was up 62¢ to $72.82/bbl. Heating oil for August delivery escalated by 3.1¢ to $2.12/gal. The August contract for reformulated blend stock for oxygenate blending (RBOB) continued climbing, up 2.88¢ to $2.37/gal.

The August natural gas contract jumped by 28.9¢ to $6.70/MMbtu on NYMEX. Natural gas prices were up in premarket electronic trading July 11, "bouncing off a recent dip," said analysts in the Houston office of Raymond James & Associates Inc. "Recent high temperatures in the Northwest are likely the catalyst, and maybe even some short-covering following the plunge from the $8/Mcf level over the last month," they said. "Gas is trading at a 24% discount to No. 6 oil currently at the New York city gate. For the 5-10% of manufacturing plants and generators able to switch between the two fuel streams, according to the National Petroleum Council, this means an opportunity to purchase more gas."

Petromatrix's Jakob said, "Natural gas had a strong rebound and heating oil regained some ground that it had lost to RBOB gasoline. Heating oil remains very close to the record highs."

In London, the August IPE contract for North Sea Brent crude also increased by 62¢ to $76.40/bbl. The July gas oil contract gained $7.25 to $653.75/tonne.

The average price for OPEC's basket of 11 benchmark crudes advanced by 23¢ to $71.59/bbl on July 10.

Contact Sam Fletcher at samf@ogjonline.com.

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