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Crude oil near record above 51 early october Original Source Link: (May no longer be active)
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Crude Oil Trades Near a Record on Winter Fuel Supply Concern
Oct. 6 (Bloomberg) -- Crude oil futures traded near a record after rising above $51 a barrel yesterday on concern Gulf of Mexico producers won't fix hurricane damage fast enough to meet winter demand.
The U.S. pumped 27 percent less oil than normal in the Gulf because of damage from Hurricane Ivan three weeks ago, the government said yesterday. Weather forecasters are predicting a colder-than-normal winter in the U.S. Northeast, which uses 80 percent of the nation's heating oil.
``The market was already tight as a drum and then you have four hurricanes in the U.S.,'' said David Thurtell, a commodity strategist at Commonwealth Bank of Australia in Sydney.
Crude oil for November delivery traded at $50.99 a barrel at 11:02 a.m. Sydney time, 10 cents lower than yesterday's record close of $51.09 on the New York Mercantile Exchange. The contract rose as high as $51.18 in after-hours electronic trading.
Yesterday, November crude rose as high as $51.29, the highest since futures began trading in 1983. Futures are 67 percent higher than a year ago.
Oil futures have gained 17 percent since Hurricane Ivan struck the Alabama coast Sept. 16, severely damaging 40 platforms in the Gulf, delaying tankers and shutting refineries. Natural gas prices have gained 42 percent during the same period, jumping 6.5 percent yesterday to a nine-month high of $7.164 per million British thermal units on the exchange.
Competing Fuels
Gas competes with oil-based products among 5 to 10 percent of U.S. factories and power plants, so gains in the oil market can spur buying in gas. Demand peaks in the winter when U.S. homeowners boost consumption of the fuel.
Speculators, betting on continued delays in restoring Gulf oil supplies and the risk of disruption in Nigeria, have pushed prices higher than warranted and are likely to force them even higher, said Mark Waggoner, president of Excel Futures Inc. in Huntington Beach, California.
``You can throw away the fundamentals,'' he said. ``Supplies are tight but they're not that bad. It's all the hype about what might happen in future.''
Ivan has pared a total of 15.3 million barrels of oil production since Sept. 13, according to the U.S. Minerals Management Service, part of the Interior Department. Oil production at offshore platforms in the Gulf of Mexico averages 1.7 million barrels on a normal day, the service said. Natural gas production is 1.7 billion cubic feet, or 14 percent, below normal, the service said.
Inventories
The hurricane cut supplies of Light Louisiana Sweet crude, which has a lower sulfur content than other varieties. ``It's the sweet stuff that everybody wants,'' Thurtell said.
U.S. supplies of distillate fuel, which include heating oil and diesel, probably fell 1.05 million barrels last week, according to the median forecasts from a Bloomberg survey of 14 analysts.
U.S. heating-oil stockpiles in the week ended Sept. 24 were 9.7 percent below the average for this time of year in the last five years. The Energy Department will publish its report on last week's fuel inventories at 10:30 a.m. Washington time.
Heating oil for November delivery rose 2.12 cents, or 1.5 percent, to close yesterday at a record $1.4068 a gallon in New York. It was at $1.4040 in after-hours trading.
``The lingering storm damage coupled with cooler temperatures are going to weigh on heating-oil supplies,'' said Michael Fitzpatrick, vice president of energy risk management with Fimat USA in New York. ``We're starting to despair that inventories won't build fast enough to meet heating needs this winter.''
Colder Winter
Matt Rogers, manager of energy weather services at Earth Satellite Corp., a Rockville, Maryland-based consultant, said he's expecting 1.5 percent more ``heating degree days'' this winter compared with the 30-year average. Heating degree days tie temperature expectations to heating fuel demand.
Crude oil supplies probably gained by 2.75 million barrels last week, according to the survey of analysts. Stockpiles rose for the first time in nine weeks the week before to 272.9 million barrels, 2.8 percent lower than a year earlier. Supplies rose as the hurricane shut refineries and others closed for pre-winter maintenance.
``This is the time of year when the refineries do shut down, so you are going to see builds during this period,'' to the country's crude oil supplies, Excel's Waggoner said.
The average cost of oil used by U.S. refiners was $35.24 a barrel in 1981, according to the Energy Department. That's $73.39 in 2004 dollars. In 1974, a barrel of oil averaged $9.07, which would be $34.83 today. Prices surged that year after the Arab oil embargo that followed the Arab-Israeli war of 1973.
Spare Capacity
Spare oil capacity to cope with disruptions such as those in the Gulf of Mexico is probably the lowest it has ever been, Commonwealth's Thurtell said. Until capacity increases or risks to supply are reduced, prices are unlikely to fall, he said.
``It's not so much problems with supplies, but potential problems with supply'' that have forced prices higher, Thurtell said.
Royal Dutch/Shell Group's venture in Nigeria will probably keep a ban on moving staff and equipment on waterways in parts of the Niger River delta this week because of security concerns, company spokesman Bobo Brown said by telephone from Port Harcourt yesterday. Nigeria was the fifth-biggest supplier to the U.S. during the first seven months of the year, according to the Energy Department.
Shell is also considering boosting inland production to compensate for the shutdown of 30,000 barrels a day of output last week, he said. Shell evacuated non-essential workers last month after the Niger Delta People's Volunteer Force pledged all- out war, including attacks on oil installations, starting Oct. 1. A cease-fire has been agreed with the government and talks are scheduled to resume Oct. 8.
To contact the reporter on this story:
Gavin Evans in Wellington, New Zealand at gavinevans@bloomberg.net
To contact the editor responsible for this story:
Reinie Booysen at rbooysen@bloomberg.net
Last Updated: October 5, 2004 21:19 EDT
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