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Gasoline Futures Surge, Oil Prices Climb

Posted on: Thursday, 1 September 2005, 06:00 CDT

VIENNA, Austria - Gasoline futures surged and crude-oil prices rose Thursday, with U.S. plans to tap strategic reserves to counter Hurricane Katrina's destruction doing little to ease concern about damage to refineries in the Gulf of Mexico.

Analysts warned of tough energy times ahead, saying the pummeling of the region's oil industry - particularly the refining sector - could take time to remedy.

Light, sweet crude for October rose 61 cents to $69.55 a barrel by midday in Europe in electronic trading on the New York Mercantile Exchange. Gasoline jumped more than 13 cents to $2.3869 a gallon.

On London's International Petroleum Exchange, October Brent futures rose 60 cents to $67.62 a barrel.

Also lifting gasoline futures was word that wholesale gasoline suppliers in the U.S. have begun capping the amount of fuel they sell to retailers in certain markets to make sure the retailers do not take delivery of more fuel than they need. Analysts said that while shortages have been reported in a small number of markets, they did not believe the problem is widespread.

Still, with gas stocks tight even before Katrina struck, the storm's impact was not restricted to the United States.

While the details were being worked out about how much oil would be loaned from the U.S. Strategic Petroleum Reserve, European nations began considering the release of their own government-controlled stockpiles of gasoline and heating oil, according to officials at the Paris-based International Energy Agency.

"The pressure is on retail prices everywhere to rise, fueling flames of discontent," said Vienna's PVM Oil Associates in its daily energy market report. It said some unions in Nigeria - which imports gas and other refined products despite being a net exporter of crude - were threatening strike action to protest against a 30 percent rise in pump prices.

The U.S. Department of Energy also said Katrina's impact would be seen mostly in refining crude oil into gasoline, not in pumping crude oil.

"Unlike Hurricane Ivan, which was a major hurricane that affected oil facilities last September and had a more lasting impact on crude oil production in the Gulf of Mexico, it appears that Hurricane Katrina may have a more lasting impact on refinery production and the distribution system," the department said.

Ivan forced a production halt of at least 44 million barrels of crude. Katrina meanwhile, shut down at least eight refineries in the Gulf of Mexico, representing 12 percent of total U.S. capacity. Others have cut back runs due to crude-oil supply snags.

U.S. Energy Secretary Samuel Bodman said reserve taps could be opened by Thursday to counter supply losses from Katrina.

"Depending on what we learn in the next few days this may be the biggest oil-supply shock since the 1970s. We are now in the days of reckoning," said Cambridge Energy Research's Daniel Yergin.

Only one of the eight refineries has spelled out plans to restart: Valero Energy, which estimated it will take two weeks for its 260,000 barrels-a-day St. Charles facility to recommence production. The status of the majority of plants is unclear, with several being located in areas of severe flooding.

Even before Katrina, oil producers and refiners had been struggling to meet rising demand around the globe, particularly in the U.S. and China. Energy markets have been on edge because the amount of excess oil production capacity worldwide is only about 1.5 million barrels a day, or less than 2 percent of demand.

Crude reached a record intraday high of $70.85 a barrel Aug. 30. Prices are more than 50 percent higher than a year ago but would need to reach $90 to surpass the inflation-adjusted high set in 1980.

Katrina slammed through zones crucial to the U.S. petroleum infrastructure over the weekend and on Monday, causing widespread damage. The storm killed hundreds and has left most of the city of New Orleans under water.

Damage assessments from major oil companies remain sketchy. The U.S. Coast Guard also said several offshore rigs were missing.

However, most companies appeared to have escaped the worst of Katrina's wrath. Among others, ExxonMobil Corp., Total SA, Murphy Oil Corp., Dominion Resources Inc., Kerr McGee Corp. and Anadarko Petroleum Corp. all indicated that their offshore facilities appeared to be intact.

BP PLC said none of its refineries were hit by the hurricane, but its fuel production has been disrupted by crude oil supply, and port and pipeline availability.

The U.S. Minerals Management Service said Wednesday that 91 percent of the Gulf of Mexico's oil output was out of service, with more than 6 million barrels of production lost since Friday. The agency said 83 percent of natural gas output was shut down, resulting in a loss of 34.2 billion cubic feet of lost production since Friday.

Natural gas prices edged up to $11.490 per 1,000 cubic feet. In other Nymex prices, heating oil rose more than 4 cents to $2.1206 a gallon.

Gas and oil stocks were falling even before Katrina struck. The Department of Energy reported Wednesday that commercially available gasoline supplies fell for a ninth straight week, dropping by 508,000 barrels to 194.4 million while crude stocks declined by 1.5 million barrels to 321.4 million.

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Associated Press Writers Brad Foss in Washington and En-Lai Yeoh and Gillian Wong in Singapore contributed to this report.

Source: Associated Press/AP Online

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