Oil dips briefly below $100 a barrelMADLEN READ
Friday, September 12, 2008
NEW YORK — Gasoline prices jumped at the wholesale level Friday as Hurricane Ike swept through the Gulf of Mexico, prompting companies along the Texas coast to shut down refining and drilling operations.
Crude oil on the futures market, however, briefly sank below the psychologically important $100-a-barrel (U.S.) mark for the first time since April 2 — showing that investors believe a worsening global economy will continue to drive down demand for some time in the United States and elsewhere.
Ike is forecast to land early Saturday as a Category 3 hurricane near Galveston, a barrier island southeast of Houston. The Houston region is home to about one-fifth of U.S. refining capacity, and the site of a major fuel and grain distribution channel.
Wholesale gasoline prices on the Gulf Coast moved further into uncharted territory Friday, rising to about $4.85 a gallon, as refineries anticipated that Ike would lead to at least a significant pause in their operations, and at worst damage to their facilities.
Wholesale prices were much lower in other regions such as Chicago, New York and Los Angeles, but even those areas saw prices rise.
In Canada, gasoline prices at the pump spiked Friday by up to 13 cents a litre in some areas, although they did not move as much in the west. GasBuddy.com, a website that monitors North American fuel prices, said the average price Friday in Canada was a shade under $1.33 a litre, compared with $1.05 a litre a year ago.
Wholesale prices are determined by major players in the supply chain including refining and trading companies, which constantly buy and sell barrels. These prices end up deciding what refineries charge distributors, before they get marked up further at the retail level for the consumer.
The average U.S. retail price for gasoline edged up less than a penny to $3.675 (U.S.) Friday from Thursday, according to auto club AAA, OPIS and Wright Express.
On the New York Mercantile Exchange, light, sweet crude for October delivery rose 4 cents to $100.91 a barrel in afternoon trading, after briefly sinking to $99.99.
October gasoline futures climbed 0.12 cent to $2.75 a gallon on Nymex.
Exxon Mobil Corp., Valero Energy Corp., ConocoPhillips and Marathon Oil Co. have begun halting operations as the Category 2 hurricane headed straight for the nation's biggest complex of refineries and petrochemical plants. U.S. wholesale gasoline prices spiked 30 per cent Thursday.
As of Friday, nearly 98 per cent of crude production and more than 94 per cent of natural gas production in the Gulf were shuttered, according to the Department of the Interior's Minerals Management Service.
By Friday afternoon, Ike was a Category 2 storm centered about 165 miles southeast of Galveston, moving to the west-northwest at nearly 12 mph. Forecasters warned it could become a Category 3 storm with winds of at least 111 mph before the eye strikes land.
Ike is huge, taking up nearly 40 per cent of the Gulf of Mexico. The National Hurricane Center said tropical storm-force winds of at least 39 mph extended across more than 510 miles.
Ike and last week's Hurricane Gustav have helped to stanch a sharp downturn in oil prices. Concerns over slowing economic growth on a global scale and a strengthening U.S. dollar have led funds to liquidate their commodities holdings, pushing crude prices down about 30 per cent from their record $147.27 set July 11.
U.S. fuel demand in June was down 5.6 per cent from the same period a year ago, according to a recent report from the Energy Department, so many market watchers are expecting oil prices to resume their tumble.
“With demand being down as much as it is, the market, some argue, is a bit oversupplied,” said Stephen Maloney, a senior consultant in energy risk management at Towers Perrin. “When you ask, how does Ike affect things? Its impacts are going to be in the context of lower demand for products than a year ago.”
In other Nymex trading, October heating oil futures rose 1.17 cents to $2.9272 a gallon. Natural gas for October delivery rose 7.3 cents to $7.321 per 1,000 cubic feet.
In London, October Brent crude fell 73 cents to $96.91 a barrel on the ICE Futures exchange, after closing at a six-month low in the previous trading session.
With files from The Canadian Press
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