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Crude oil surges with another storm in mexico gulf Original Source Link: (May no longer be active)
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Crude Oil, Gasoline Surge as Storm Heads for the Gulf of Mexico
Sept. 19 (Bloomberg) -- Crude oil and gasoline jumped, as natural gas surged to an all-time high, on forecasts that Tropical Storm Rita will strengthen into a hurricane and impede efforts to restore production in the Gulf of Mexico.
Rita, which gained strength over the Bahamas, may become a hurricane tonight and approach the Texas coast by Sept. 24. Hurricane Katrina last month caused the shutdown of eight oil refineries and forced at least 10 others to slow processing. Royal Dutch Shell Plc, BP Plc and Chevron Corp. announced they are pulling workers from platforms in the Gulf.
``Evacuations have already started, which is going to disrupt production,'' said Doug Leggate, senior oil analyst at Citigroup Inc. in New York. ``Any storm going through the Gulf is going to slow the pace of the recovery from Katrina.''
Crude oil, natural gas, gasoline and heating oil surged to records after Katrina made landfall. Crude oil touched $67.60 on the New York Mercantile Exchange, the highest since Sept. 2. Natural gas futures reached $12.70, the highest since the contract was introduced in 1990. The previous record of $12.30 was touched on Aug. 31.
The Organization of Petroleum Exporting Countries expects to announce tomorrow an agreement to offer an extra 2 million barrels a day to world markets, which would leave members pumping as much as they can, the group's president said. OPEC, which produces 40 percent of world's oil, is meeting today and tomorrow in Vienna.
Evacuations
Evacuations of employees, including some who are essential to production, began as Rita strengthened and headed toward southern Florida. Houston-based Diamond Offshore Drilling Inc. is idling two rigs for evacuation, and a third is being moved from Rita's projected path, company spokesman Les Van Dyke said today in a telephone interview.
About 30 percent of U.S. oil production comes from offshore facilities in the Gulf, while the region accounts for 24 percent of the country's gas output.
Oil and natural-gas supplies from the Gulf will take three months to return to 90 percent of normal levels because of storm damage, the U.S. Minerals Management Service said on Sept. 16. The agency is part of the Interior Department and manages offshore resources.
Katrina, which hit the Gulf Coast Aug. 29, shut as much as 95 percent of U.S. oil and 88 percent of gas output as offshore platforms and coastal processing plants were evacuated. The MMS said that 56 percent of Gulf oil production was idle today, about 2 percentage points less than a week ago. Natural-gas output was down by 34 percent.
Rita's Track
Rita was 165 miles southeast of Nassau, Bahamas, with winds close to 70 mph as of an update from the U.S. National Hurricane Center at 2 p.m. New York time. The storm is on a course to make landfall near Houston. The storm could strike anywhere on the Texas or Louisiana coasts, according to the center.
``We left Friday with the forecasts showing a hit around Brownsville, Texas, but over the weekend the track has shifted north and there is a real chance that it will hit Louisiana,'' said Bill O'Grady, assistant director of market analysis at A.G. Edwards & Sons in St. Louis. ``Another large storm hitting Louisiana would be unprecedented and disastrous. There have been years when more than one storm has hit but they were weaker.''
Four refineries remain shut because of damage caused by Katrina. The plants, three in Louisiana and one in Mississippi, have a combined processing capacity of about 887,000 barrels of oil a day, or more than 5 percent of total U.S. fuel-making capacity.
Threat to Texas
If the storm ``continues westward it will threaten the Houston Ship Channel and the many refineries along the Texas coast,'' said Marshall Steeves, an analyst at Refco Inc. in New York. ``We already have about 4.8 percent of refining capacity out indefinitely because of Katrina and can't afford to lose more.''
Crude oil for October delivery jumped $4.39, or 7 percent, to $67.39 a barrel, the highest close since Sept. 2. It was the biggest increase since Dec. 26, 2001. Futures have declined 4.9 percent since touching a record $70.85 a barrel on Aug. 30. Prices are 45 percent higher than a year ago.
Natural gas for October delivery surged $1.519, or 14 percent, to close at a record $12.663 per million British thermal units in New York. It was the biggest percentage increase since Nov. 24, 2004. Prices have more than doubled in the past year.
`True Supply Shock'
Merrill Lynch & Co.'s senior energy strategist, Francisco Blanch, expects oil to average $65.50 next year because Hurricane Katrina ``has acted as a true supply shock to global energy markets.''
Texas' 26 refineries have the capacity to process 4.6 million barrels of crude oil a day, or 26 percent of the U.S. total, according to the Energy Department. Most of the state's refineries are located along the coast in the Corpus Christi, Houston and Port Arthur areas. Louisiana is the second-biggest refining state.
Gasoline for October delivery jumped 25.76 cents, or 14 percent, to $2.0427 a gallon, the highest close since Sept. 6 and the biggest one-day change since Aug. 30. Gasoline reached $2.92 a gallon on Aug. 31, the highest since trading began in 1984. Futures are 61 percent higher than a year ago. Gasoline and natural gas are the biggest moving commodities today.
Regular-grade gasoline, averaged nationwide, plunged 8.2 cents to $2.805 a gallon Friday, according to data released today by the AAA, the nation's largest motoring organization. Prices have declined 8.2 percent since touching a record $3.057 on Sept. 2. Pump prices are 51 percent higher than a year ago.
Home Heating
U.S. consumers can expect to pay at least $400 more for heating oil this winter compared with a year ago because of the shutdown of refineries. The cost to heat a typical home in the Northeast, where 80 percent of the nation's heating oil is used, may jump to $1,667, according to Mark Wolfe, executive director of the National Energy Assistance Directors' Association.
Heating oil for October delivery surged 20.14 cents, or 11 percent, to close at $2.0384 a gallon. Futures touched $2.21 on Sept. 1, the highest in 27 years of trading on the exchange. Heating oil is 61 percent higher than a year ago.
`Two Million' Barrels
``We will finalize it tomorrow and put two million in the market,'' Sheikh Ahmad Fahd al-Sabah, the OPEC president and Kuwaiti oil minister, said in an interview. ``All our extra capacity, we're putting it in the markets.''
OPEC expects to get buyers for those supplies ``any time,'' Sheikh Ahmad said.
The oil minister for Saudi Arabia repeated an offer to operate at full production capacity to help meet rising oil demand and reiterated a proposal made last year to invest in new refineries in the U.S. Saudi Arabia is the world's biggest oil exporter and the most influential member of OPEC.
``I have given you the Saudi position in an official communique,'' the Saudi oil minister, Ali al-Naimi, told reporters in Vienna today. ``We have 11 million barrels a day of capacity. It is available to the market.''
Saudi Arabia is the only OPEC member with significant amounts of spare capacity, though most of the additional barrels are heavy, sour oil that many refineries are unable to process.
``OPEC's irrelevant insofar that they can't do anything to bring down prices,'' O'Grady said. ```If they had spare capacity they would have already been using it. They become relevant again if prices fall and they decide to cut back on output.''
Emergency Stockpiles
Members of the International Energy Agency agreed on Sept. 2 to release as much as 1.28 million barrels a day of crude oil and 683,000 barrels a day of refined products for a month, half of it from the U.S. Strategic Petroleum Reserve, to help ease shortages
In London, the November Brent crude-oil futures contract rose $3.80, or 6.2 percent, to close at $65.61 a barrel on the International Petroleum Exchange. Prices touched $68.89 on Aug. 30, the highest since trading began in 1988.
Norsk Hydro ASA, Norway's second-largest oil company, agreed to buy Spinnaker Exploration Co. of the U.S. for $2.45 billion to gain fields in the Gulf of Mexico as North Sea output declines. With its 350 exploration leases, Spinnaker will make Hydro one of the top 10 license holders in the Gulf and offer a chance to find oil and gas in the area's deep waters.
``It doesn't take long in this price environment for these deals to pay for themselves,'' Leggate said.
Last Updated: September 19, 2005 16:10 EDT
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