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Oil Falls to Six-Month Low as Refineries Escape Major Damage

Oil Falls to Six-Month Low as Refineries Escape Major Damage
By Mark Shenk
Sept. 14 (Bloomberg) -- Crude oil fell to a six-month low in New York and gasoline tumbled amid signs that refineries along the Gulf of Mexico coast will soon resume operations after escaping major damage from Hurricane Ike.
Almost 20 percent of the U.S.'s oil refining capacity was shut, limiting fuel deliveries and prompting the Department of Energy to release 309,000 barrels from its strategic reserves. New York Mercantile Exchange electronic trading opened early to allow traders to respond to Ike.
``It looks like we've dodged another bullet,'' said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut. ``The refineries in the Houston area seem to have come out of the storm remarkably intact.''
Crude oil for October delivery fell $2.07, or 2.1 percent, to $99.11 a barrel at 2:44 p.m. on the Nymex. Futures touched $98.55, the lowest since Feb. 26. Prices are up 25 percent from a year ago. Gasoline for October delivery fell 12.31 cents, or 4.4 percent, to $2.6465 a gallon in New York.

CME Group Inc., the world's biggest futures exchange, began Nymex electronic trading of energy contracts at 10 a.m. New York time today.

Oil in New York has fallen 33 percent from a record $147.27 a barrel on July 11 as high prices and slowing global economic growth reduce demand for fuels. Sales at U.S. retailers dropped in August for a second straight month and July inventories at American businesses increased the most in four years, Commerce Department reports showed last week.
Trumping Ike

``Growing fears about the economy are trumping any fears about the damage caused by Hurricane Ike,'' said John Kilduff, senior vice president of risk management at MF Global Inc. in New York. ``The broader issue is the weakness of the financial system. Given the Lehman and WaMu watch, cash looks better than any speculative investment.''
Barclays Plc, the U.K.'s third-biggest bank, pulled out of talks to buy Lehman Brothers Holdings Inc. today as the U.S. government raced to find a solution for the faltering investment bank. Washington Mutual Inc. plummeted in New York trading last week on speculation about its financial health.

At least 13 refineries in Texas including plants operated by Exxon Mobil Corp., Valero Energy Corp. and Royal Dutch Shell Plc shut 3.64 million barrels a day of refining capacity as Ike approached Texas.

Lake Charles

Calcasieu Parish, Louisiana, which is home to three refineries, reported ``widespread'' power outages and flooding in Ike's aftermath, Tom Hoefer, the parish's public information officer, said in an interview. Hoefer said the refineries located in Lake Charles likely escaped damage.
The three local refineries, which can process a combined 772,000 barrels a day, are owned by ConocoPhillips, Citgo Petroleum Corp. and Calcasieu Refining Co.

``It looks like the storm surge was greater to the east- northeast so we got a lot of flooding in Lake Charles instead of the Houston area,'' Beutel said. ``The possible damage of the three Lake Charles refineries instead of the 13 in Houston is a trade I would take any day.''
Regular gasoline, averaged nationwide, rose 6.2 cents to $3.795 a gallon, AAA, the nation's largest motorist organization, said today on its Web site. Pump prices reached a record $4.114 a gallon on July 17.

Pump prices in the Southeast U.S. surged as the Ike made landfall. Regular gasoline in Georgia rose 16.2 cents to an average $4.025 a gallon, the AAA said today. In North Carolina the regular gasoline climbed 11.1 cents to $3.973 a gallon.
Fuel Prices

``The crude oil price should be lower because with the refineries down, there is nowhere for it to go,'' Kilduff said. ``The drop in product prices may be short-lived because some of these refineries could be down for weeks.''
Heating oil dropped 9.11 cents, or 3.1 percent, to $2.848 a gallon. Heating oil touched $2.8325 a gallon, the lowest since March 5. Trades of all the futures contracts will be recorded as part of the Sept. 15 session.
The National Hurricane Center released its last advisory on Ike at 10 a.m. Houston time when the remnants of the hurricane were centered 60 miles (97 kilometers) east-northeast of St. Louis. Ike had winds of 110 mph at its landfall in Galveston at 2:10 a.m. yesterday.
The storm idled about 99.6 percent of oil production and 91.9 percent of natural-gas output in the Gulf of Mexico, the U.S. Minerals Management Service said today. Gulf fields produce 1.3 million barrels oil a day, about a quarter of U.S. output, and 7.4 billion cubic feet of gas, 14 percent of the total, government data showed.
Natural gas for October delivery rose 5.8 cents, or 0.8 percent, to $7.424 per million British thermal units in New York.
The Energy Department released 630,000 barrels of crude oil from the strategic reserve to Placid Refining Co. and Marathon Oil Corp. after Hurricane Gustav made landfall in Louisiana on Sept. 1. That brings the total release because of the two storms to 939,000 barrels.

Oil Falls Under 100

Oil dips briefly below $100 a barrel

MADLEN 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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