Royal Dutch Shell Plc  .com Rotating Header Image

Chicago Tribune: Sharp drop in oil prices

Refinery problems cause glut of crude
Published April 10, 2007

NEW YORK — The price of oil fell the most in three months Monday because of a supply glut at a key North American delivery point and speculation that an Energy Department report will show U.S. inventories jumped last week.

Light, sweet crude for May delivery fell $2.77 a barrel, to settle at $61.51, on the New York Mercantile Exchange. It was the lowest close since March 21 and the biggest one-day decline since Jan. 4. The price of oil is down 8.7 percent from a year ago.

Crude-oil supplies in Cushing, Okla., where oil traded in New York is delivered, surged 12 percent in the week ended March 30, Energy Department figures show. Fires and power outages have forced refiners to shut units, reducing crude-oil demand.

“Crude oil is pulling everything lower,” said James Ritterbusch, president of Ritterbusch and Associates in Galena, Ill. “It looks like we will see record inventories in Cushing this week because of all of the refinery outages.”

“Prices are depressed because the tanks in Cushing are full as a result of refinery problems,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Mass. “There’s nowhere to put the oil. If someone could figure a way to ship the oil stuck in Cushing to the UK, they would make a fortune.”

Because the hub serves as a delivery point for oil, the facility is the “Achilles’ heel” for the petroleum market, said Tim Evans, an energy analyst with Citigroup Global Markets. As it nears capacity, dealers have no place to store more oil should they want to take advantage of low prices on the May futures contract, which expires April 20.

“We simply woke up on the wrong side of the bed,” he said, adding that traders knew of the glut last week. “Somebody’s alarm went off, and it was time to sell May crude.”

An Energy Department report scheduled to be released Wednesday is expected to show that U.S. crude-oil supplies rose last week as inventories of gasoline and distillate fuels such as heating oil fell, according to a Bloomberg News survey.

“The continuing spate of refinery outages and maintenance issues is pushing product prices higher and putting downward pressure on crude,” said Eric Wittenauer, an energy analyst at A.G. Edwards & Sons Inc. in St. Louis. “Until you see an uptick in refinery operations, crude oil will have a hard time rising.”

Motiva Enterprises LLC, the refining joint venture between Europe’s Royal Dutch Shell PLC and Saudi Arabia’s state oil company, reported a malfunction that occurred Sunday at its plant in Port Arthur, Texas. The Port Arthur refinery has a daily processing capacity of 285,000 barrels, according to the Energy Department.

Refineries in Texas, California, Pennsylvania, Colorado, Ontario and Delaware have had to trim output during the past two months. The closing of Valero Energy Corp.’s McKee refinery near Sunray, Texas, has contributed to the increase in supplies in Cushing.

Also Monday, Iranian President Mahmoud Ahmadinejad said his country has begun enriching uranium on an industrial scale, stepping up defiance against the United Nations.

“Iran has succeeded in the nuclear-fuel-cycle development to attain production at an industrial level,” Ahmadinejad said at a ceremony at the Natanz uranium-enrichment site. He repeated that nuclear-fuel production was Iran’s “undeniable right” and referred to “a few powerful governments imposing their will on the rest,” according to a broadcast of the speech.

The United Nations Security Council gave Iran 60 days from March 24 to suspend enrichment. The country already has ignored three UN deadlines to shut down production of the nuclear fuel. The UN demands were in response to allegations by the U.S. and some of its allies that Iran is using the development of nuclear power to disguise a weapons program. Iran denies the allegations.

“We’ll be keeping an eye on the news that Iran’s nuclear production has reached an industrial level,” said John Kilduff, vice president of risk management at Fimat USA in New York. “This could perk up the market.”

In other Nymex trading, natural gas fell 6.1 cents, to settle at $7.546 per 1,000 cubic feet, and heating oil dropped 4.52 cents, to close at $1.8157 a gallon. Gasoline declined 3.42 cents, to $2.0946 a gallon.

Copyright © 2007, Chicago Tribune and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

0 Comments on “Chicago Tribune: Sharp drop in oil prices”

Leave a Comment

%d bloggers like this: