Crude Oil Cools as Gulf Coast Recovery Progresses

9-7-05 - Crude oil prices cooled further Wednesday as the production recovery proceeded in the hurricane-battered U.S. Gulf Coast, but unleaded gasoline prices rose and traders were keeping a close eye on another storm brewing off Florida.

Benchmark light, sweet crude for front-month October delivery fell 35 cents to $65.61 a barrel by afternoon in Europe on the New York Mercantile Exchange. The contract had closed down $1.67 to $65.96 in New York floor trade. On London's International Petroleum Exchange, October Brent futures were down 47 cents to $64.20 a barrel.

Unleaded gas rose by almost 1 1/2 cents to $2.0690 a gallon, and heating oil slipped marginally to $2.0525.

Natural gas prices were down by nearly nine cents $11.568 per 1,000 cubic feet. Still some experts say natural gas might prove the highest commodity casualty from Katrina.

Analysts said signs that Hurricane Katrina's damage to petroleum facilities was not as bad as originally feared and reports of a quicker-than-expected return to work for refiners ravaged by the hurricane last week were partly behind lower crude prices.

Chevron Corp. said that most of its offshore facilities were not significantly damaged, but that it would take days to determine when its largest oil refinery in the region will start running.

"One week after Hurricane Katrina hit the Gulf Coast, the company returned to 45 percent of its pre-Katrina production level," Chevron said.

Vienna's PVM Oil Associates said that while 56 U.S. Gulf oil and natural gas offshore platforms appeared to have been lost or damaged _ "shipping operations are ... markedly improving (and) good news is also coming from the refining sector."

It said eight refineries are working to resume full production and the Chalmette refinery _ one of the three fully closed units _ was tentatively scheduled to restart as early as next week.

Nymex crude is more than $5 off its intraday high of $70.85 reached Aug. 30 in the wake of Katrina, but still remains around 50 percent higher from a year ago.

The U.S. Department of Energy's weekly petroleum inventories report _ to be released Thursday, a day late because of the extended Labor Day weekend _ is expected to show declines in the U.S. petroleum inventories because of Katrina's direct hit on the nation's key oil infrastructure.

A Dow Jones Newswires survey of analysts showed crude stocks likely fell 6.8 million barrels in week to Sept. 2 while gasoline stocks will be down at least 3 million barrels. Distillates are likely to fall by 1.5 million barrels, the survey of 10 analysts showed.

Meanwhile, more than 4 billion cubic feet a day, or 42 percent, of the region's natural gas production remained shut down and 67.6 billion cubic feet of output has been lost since Aug. 26, according to the Minerals Management Service in its latest release Tuesday.

"While U.S. crude oil and gasoline prices came off the boil on Tuesday, natural gas hardly budged," said Energyintel analyst Tom Wallin in a research note from New York.

"The longer term impact of Katrina may be felt much more intensely in North American natural gas markets, which like refining have displayed a new dimension of vulnerability."

This is the time of year when utilities typically increase their underground storage of natural gas to prepare for winter demand.

"Natural gas is the only contract that did not fall sharply from last week's record highs," said PVM. "This reflects the highly limited options to make up for lost supplies of natural gas."

Storm trackers meanwhile, were fixated on Katrina's likely successor: Tropical Depression 16, now off Florida, that could turn into Tropical Storm Ophelia later Wednesday.

On Wednesday, the U.S. National Hurricane Center issued a warning on a new storm brewing off Florida and said Tropical Storm Nate was also strengthening near Bermuda, as the active Atlantic hurricane season rolls on.

"The biggest immediate worry is of another storm coming at a time when the region's infrastructure is fragile and in disarray," said Wallin.

In its damage report, Chevron said it will take days to determine when its Pascagoula, Mississippi, refinery, which processes 325,000 barrels of crude oil a day, will come back on line. It was the largest shut down by damage from the hurricane, according to the Department of Energy.

Chevron also said the shutdown of the Colonial and Plantation pipelines, which sends products as far as the Northeast has "caused product shortages along those pipeline routes." Reports say both pipelines have resumed delivery at less-than-normal capacity.

Regular-grade gasoline rose on average by 46 cents a gallon to $3.069 in the United States last week, the U.S. Energy Information Administration said.

The emergency supply of refined products coming from Europe will help, analysts said, but it will be more than a week before shipments begin arriving and inventories of gasoline and heating oil will remain tight.

More than 20 nations under the International Energy Agency last week have agreed to release 2 million barrels of oil daily for 30 days to help ease pressure on U.S. petroleum product supply.

"A significant amount of refined products will remain off the market for some time to come, and will prevent heating oil and gasoline stockpiles from being replenished, at least for the next few weeks," said John Kilduff of brokerage Fimat Inc.