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Crude Oil Prices Fall to $64.85 a Barrel

THE NEW YORK TIMES: Crude Oil Prices Fall to $64.85 a Barrel

Monday 5 September 2005


Published: September 5, 2005

Filed at 6:14 a.m. ET

VIENNA, Austria (AP) — Oil prices fell Monday after industrialized nations agreed to release 60 million barrels of crude from their strategic stockpiles to help avert a severe fuel shortage in the United States.

The U.S. refinery system was struggling to recover from Hurricane Katrina. Two storm-shuttered facilities restarted and flows of crude oil improved enough to allow refineries in the Gulf Coast and Midwest to ramp up production. But four damaged Gulf Coast refiners look likely to remain shut for weeks or even months, taking with them more than 5 percent of U.S. capacity.

Still the decision by industrialized nations to alleviate the hurricane-caused shortfall from their own stocks appeared to calm the waters. Vienna’s PV oil associates said that by Monday about 30 cargoes of gasoline from those countries to the United States had been arranged.

On London’s International Petroleum Exchange, October Brent was down $1.21 to $64.85 a barrel by midday in Europe — close to what it had been fetching before Katrina hit.

The New York Mercantile Exchange was closed for the Labor Day holiday. Benchmark light, sweet crude had closed Friday at $67.57 a barrel, down $1.90 after the International Energy Agency on Friday announced its 26 members would release 2 million barrels daily for 30 days to meet shortfalls in world energy markets.

The International Energy Agency groups industrialized nations under the Organization of Economic Cooperation and Development umbrella. Its members began stockpiling crude following the oil shocks of the 1970s.

The total release from the IEA includes 30 million from the United States’ own Strategic Petroleum Reserve, which is near its capacity of around 700 million barrels stored in salt caverns in Texas and Louisiana — the state hardest hit by Katrina.

But analysts urged caution, despite the respite.

”Be wary of good news. The situation remains horrific and light will be at the end of a very long tunnel,” brokerage Fimat Inc. said in a research note.

Petroleum prices soared last week after the hurricane’s direct hit on U.S. petroleum infrastructure responsible for 30 percent of its crude production, a quarter of its gas and its import terminals.

Hurricane Katrina pinched U.S. fuel supply, causing spot shortages and price spikes throughout the country. The storm shut eight major refineries and caused 12 others to run at reduced rates when their crude-oil supplies were cut.

Refineries in Louisiana expect to be back running within the week. Motiva Enterprises, a joint venture of Royal Dutch Shell PLC and state-owned Saudi Arabian Oil Co., has begun to restart its 235,000 barrel a day refinery.

That’s the second refinery to restart after Hurricane Katrina. Marathon Oil Corp. restarted its 245,000 barrel a day refinery last week and expects the facility to be operating at full capacity Monday.

The prospects for four other refineries that shut down ahead of the storm are more dire. The plants, in hard-hit areas southeast of New Orleans and in Mississippi, can process some 880,000 barrels a day of crude, more than 5 percent of total U.S. capacity.

Chevron Corp.’s 325,000 barrel a day Pascagoula, Mississippi, facility and ConocoPhillips’ 255,000 barrel a day Alliance refinery in Belle Chasse, Louisiana, have suffered ”major damage,” the Energy Department said.

Also improving crude-oil supply, the Louisiana Offshore Oil Port, the key facility for offloading and distributing imported crude oil on the U.S. Gulf Coast, said Saturday it is able to operate at about 75 percent capacity after power was restored at its Clovelly, Louisiana, storage facility. Deliveries of crude oil to the Capline Pipeline supplying refineries in the Midwest should begin Sunday.

Nymex crude soared to an all-time high of $70.85 a barrel Aug. 30, followed closely by highs in gasoline and natural gas.

”It should be a wake-up call for U.S. energy planners,” said Energyintel analyst Peter Kemp in London.

Even before Katrina, markets were on edge because high demand in the United States and China had whittled back global excess capacity to just 1.5 million barrels of the global daily diet of crude, which means there was little left to offset any unplanned production snag.

Associated Press Writer En-Lai Yeoh contributed to this report from Singapore

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