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Houston Chronicle: $60 oil could be just around the corner

Houston Chronicle: $60 oil could be just around the corner

Refinery outage in Deer Park and threats in Nigeria mean record price

Posted Monday 20 June 2005

By LYNN J. COOK

Copyright 2005 Houston Chronicle

Oil swerved closer to $60 than it ever has before, settling at $58.47 a barrel and setting a record Friday.

Market watchers are split over whether prices are justified, but a growing number of analysts are crying foul as light, sweet crude prices catapulted almost $5 a barrel.

The last time prices were anywhere near as high was April 1, when oil closed at $57.27 on the New York Mercantile Exchange.

“Let’s call this what it is — rampant speculation,” said Kyle Cooper of Citibank Global Market in Houston.

“It’s the momentum players pushing it higher, and they are using anything they can find as justification.”

In Friday trading alone, crude prices climbed $1.89 a barrel on news of a refinery outage in the Houston area and consulate closings in Lagos, Nigeria.

Nigeria is a major exporter of light, sweet crude, which is easy to refine into gasoline and diesel fuel. The country accounts for 5 percent of America’s daily oil consumption.

Cooper isn’t buying into the fear factor.

“This is about what might happen, not what is happening now,” he said. “How much oil has the U.S. embassy closing affected? How much oil has the U.K. embassy closing affected? Not one drop.”

Shell’s Deer Park refinery did confirm it has powered down a 67,000-barrel-a-day catalytic cracking unit that makes additives for gasoline and diesel.

Shell spokesman David McKinney said the unit will be down 10 to 14 days. In the meantime, Shell will shuffle fuel additive inventories and could buy from the open market to fill the gap, he said.

“It’s too early to have the exact net amount of gasoline that won’t be made, but I can tell you it isn’t anywhere even remotely close to 67,000 barrels a day,” McKinney said. “The public isn’t going to see anything different in terms of filling up at Shell stations.”

However, the public probably will see higher prices at the pump in the coming weeks, not so much because of Shell, but because of market speculation, said Steve Bellino, senior vice president of energy risk management for Fimat USA in New York.

Wholesale gasoline jumped a nickel in trading Friday and is up 10 cents since Tuesday, with the national average for a gallon of unleaded regular going for $2.14, up about a half-cent from the day before. In Houston, the average price is $2.04.

“We’re confident OPEC can keep pumping, but a lot of people are anticipating that in the fourth quarter the current oil output by OPEC won’t meet demand,” Bellino said. “That’s what they’re betting on. Obviously this isn’t a fundamental play.”

But Tom Petrie of energy advisory firm Petrie Parkman & Co. said fundamentals are at work.

“I would argue it’s quite connected with fundamentals,” Petrie said. “This market has developed a healthy skepticism based on the reality that Saudi Arabia and other key OPEC suppliers are doing a lot more talk about new supply than actually providing it.”

Citibank’s Cooper said if genuine fear were motivating the market, prices would ease when the worst-case scenario doesn’t materialize.

He cites the heating oil example.

Two weeks ago, crude oil prices started popping because of a heating oil inventory shortage, even though the cold season just ended. In the last two weeks, those distillate stocks have grown by almost 4 million barrels, but oil prices continue to climb.

“Now their excuse is that gasoline inventories are only 10 million barrels above that year,” Cooper said. “They go from one hype to the next.”

It’s hard to ignore overall petroleum storage numbers for the United States, which are more than 200 million barrels higher than they were in spring 2003. Crude prices were $30 a barrel back then compared with more than $58 a barrel today.

“If you take an objective look at inventories, there’s no shortage,” Cooper said. “The only shortage in this market is financial sellers.”

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