• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

Oil Prices Fall, but Supply Worries Remain

Posted on: Friday, 30 September 2005, 15:01 CDT

By MADLEN READ

NEW YORK - Oil prices pulled back on Friday as traders took profits from surges earlier in the week, but jitters remained over the slow recovery of oil facilities on the Gulf Coast and the possible impact on winter fuel supplies.

Light, sweet crude for November delivery on the New York Mercantile Exchange fell 99 cents to $65.80 a barrel in early afternoon trading.

Heating oil for October slipped 6.47 cents to $2.06 a gallon, while October gasoline tumbled more than 15 cents to $2.095 a gallon. October heating oil and gasoline contracts expire at the end of trading Friday, which is also the last day of the third quarter - another reason why some traders are selling.

Brent crude for November on London's International Petroleum Exchange fell 74 cents to $63.10.

"The market is just breaking down a bit after rallying in the middle of the week," said BNP Paribas Commodity Futures analyst Tom Bentz, adding that big price swings have become normal in these volatile oil markets, and aren't always driven by big news or new data.

"We still have some major problems down in the Gulf, and they're not going to go away," Bentz said.

Crude prices are up nearly 3 percent from last Friday, when Hurricane Rita was barreling through the Gulf of Mexico, while heating oil is 5.6 percent higher and gasoline is up only marginally.

Although gasoline futures fell Friday, gasoline spot prices are still extremely high, as oil companies are willing to pay top dollar to keep up supplies to meet consumer demand. Demand has faltered in the wake of Katrina and Rita but could be on the upswing as the Gulf region recovers, analysts said.

Adding to gasoline supply concerns is an ongoing strike at a Total refinery in France that has halted production for 11 days. Total is Europe's largest gasoline exporter to the United States, with an output of about 325,000 barrels a day.

The average U.S. retail price of a gallon of gasoline was $2.84 on Friday, up about 3 cents from a day earlier, according to AAA.

Meanwhile, natural gas fell 24.6 cents to $13.95 per million British thermal units, after hitting a settlement record of $14.196 a day earlier. The U.S. Energy Department said Thursday that natural gas inventories increased by 53 billion cubic feet to 2.885 trillion in the week ended Sept. 23 from the week earlier, but remained about 4 percent below year-ago levels.

Natural gas supplies have been a real concern in the oil markets as the Gulf region struggles to recover from hurricane damage and the winter months approach. The United States' ability to import liquefied natural gas is limited, unlike crude oil, which can be imported from other countries and taken from the U.S. government's emergency reserve.

Oil and gas production in the Gulf region has improved only slightly in the past few days. As of Thursday, 98.6 percent of oil output, or 1.48 million barrels of oil per day, was blocked, while 79.8 percent of natural gas production, 7.98 billion cubic feet per day, remained shut in, the Minerals Management Service said.

More than 7 percent of annual oil production and more than 5 percent of annual natural gas production have been shuttered since Katrina hit.

Damage reports have been filtering in from oil companies hit by Rita, with many not providing any definite startup timeline. Restoration of electric power also has been slow.

In the U.S. Gulf area, half of the 16 refineries shut down ahead of Hurricane Rita have yet to restart, while two are attempting to restart, the EIA said Wednesday.

On Friday, Exxon Mobil Corp. said its 183,000-barrel-a-day Chalmette, La., refinery should restart in November.

The refinery shutdowns are costing about 1.5 million barrels a day of gasoline, 800,000 barrels of distillate fuel and 400,000 barrels of jet fuel, the EIA said Wednesday.

As of late Thursday, two of the 12 pipelines out of the region remain closed - the Centennial Pipeline, which can transport up to 210,000 barrels a day of refined products, and the Longhorn Pipeline, which can transport up to 72,000 barrels a day of refined products, according to the Association of Oil Pipelines. Seven of the 12 pipelines are operating partially.

Crude oil prices hit an all-time high of $70.85 briefly on Aug. 30, after Katrina touched down. They remain about 33 percent higher than a year ago, when Hurricane Ivan disrupted oil production and refining in the Gulf.

Source: Associated Press/AP Online

More News in this Category