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Crude Oil Prices Ease on Product Concern

Posted on: Tuesday, 27 September 2005, 12:00 CDT

By MADLEN READ

NEW YORK - Crude oil prices eased Tuesday after a robust rally a day earlier, but markets remained concerned over possible shortages in oil products as refineries continued to assess the damage caused by Hurricane Rita.

Light sweet crude for November fell 27 cents to $65.55 a barrel on the New York Mercantile Exchange. It had risen $1.63 on Monday.

Gasoline futures extended Monday's gains, rising nearly 6 cents to $2.1875 a gallon.

"People are recognizing that gas supplies are going to be tight for a while," said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York.

Drivers are seeing higher prices at the pump, and analysts say they won't let up soon. At an average of $2.81, the U.S. retail price of a gallon of gasoline is more than 20 cents higher than a month ago, before Hurricane Katrina struck the Gulf coast.

Heating oil edged up just less than a cent to $2.0650 a gallon, but it is becoming a real worry as the Northern Hemisphere winter approaches.

"Heating oil is going to be on the radar real soon. You can count on it," Silliere said.

Meanwhile, natural gas slipped 14 cents to $12.30 per million British thermal units.

On London's International Petroleum Exchange, November Brent futures fell 33 cents to $63.60 a barrel.

While Rita inflicted less damage than expected, all of crude output in the Gulf of Mexico was still shut down and at least 16 of 25 operating refineries in Texas were closed after the storm blew through over the weekend, according to the U.S. Department of Energy. The state produces about a quarter of petroleum products in the United States.

"Products are a huge risk in the market at the moment and I wouldn't be surprised to see those prices rally in the near future," said Sandra Ebner, energy analyst at Deka Bank in Frankfurt.

"With all the refinery problems in the U.S., everybody is seeking higher quality crude oil, which is easier to process, and this is keeping pressure on Nymex and Brent futures," she added.

Saudi Arabia's Oil Minister Ali Naimi said Tuesday that Hurricane Rita and Hurricane Katrina, which hit a month ago, had exposed the petroleum's industry's fragility. "These are turbulent times for oil markets," Naimi said at a conference in South Africa.

But he reiterated that there was enough spare crude to meet demand and that the problem instead was the lack of refineries.

Naimi said that OPEC had no takers for its offer of an extra 2 million barrels a day, while the International Energy Agency had offered 60 million barrels after Katrina struck and only 11 million were taken. Much of the rejected oil was heavy, sour crude, which is more difficult to refine.

Early estimates were that Hurricane Rita will cost U.S. refiners about 800,000 barrels a day in capacity, on top of a drop about 900,000 barrels a day because of Hurricane Katrina. Market-watcher Energyintel put the number of lost barrels from Rita even higher, at 1.1 million barrels a day.

The storm also knocked off-line 78 percent of natural gas output in the Gulf , the U.S. Minerals Management Service said.

About a dozen refineries in Texas remained shut down as of Tuesday, and could take weeks to fully resume operations.

Valero Energy Corp. said Tuesday it has restarted its Houston and Texas City refineries, but its 255,000-barrel-a-day refinery in Port Arthur will be out two to four weeks.

Exxon Mobil Corp. said it expected to complete a damage survey this week at its Beaumont refinery. The company owns the nation's largest refinery, in the Houston area city of Baytown, which was in the process of restarting Tuesday.

Royal Dutch Shell PLC said its Port Arthur refinery has sustained some damage, but its refinery near Houston could start up in the next few days. Marathon Oil Corp. said Monday it was restarting its Texas City refinery. Total Petrochemical gave no start-up date for its 240,000 barrel-a-day Port Arthur refinery, but said it appeared to be in good shape. Calcasieu Refining Co. gave no start-up date for its refinery in Lake Charles, La., which was without power Monday and suffered some damage.

Meanwhile, Chevron Corp. said Tuesday that it has restarted production at both oil platforms in Nigeria that it shut down due to threats by a militia last week. The two account for output of 27,000 barrels per day.

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Associated Press Writers En-Lai Yeoh in Singapore, Edith Balazs in Budapest, Hungary, and David Koenig in Dallas contributed to this report.

Source: Associated Press/AP Online

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