Associated Press: Oil Hits New Record on Refinery Outages

Thursday September 13, 11:08 am ET
By John Wilen, AP Business Writer 

Oil Prices Set New Record, Gasoline Prices Rise As Hurricane Hits Texas Refineries

NEW YORK (AP) — Oil prices briefly hit a record high and gasoline futures jumped Thursday as refiners reported production problems after Hurricane Humberto hit Texas.
Oil first traded over $80 a barrel on Wednesday after the Energy Department reported declines in crude and gasoline inventories and refinery activity last week.

But in addition to supply concerns, Humberto and a developing storm in the Atlantic are supporting prices.

Valero Energy Corp.’s 325,000 barrel-per-day Port Arthur, Texas, refinery was shut due to a power outage. Exxon Mobil Corp. said its Beaumont, Texas, refinery suffered a minor production outage from Humberto.

Dow Jones Newswires reported that Port Arthur refineries owned by Motiva Enterprises LLC and Total SA were also shut down due to the power outage.

Traders appear more concerned about an Atlantic storm which the National Hurricane Center is calling Tropical Depression Eight. While the storm’s course remains unclear, energy investors get worried any time a tropical storm or hurricane threatens key oil and gas infrastructure in the Gulf of Mexico.

Light, sweet crude for October delivery fell 22 cents to $79.69 a barrel on the New York Mercantile Exchange after rising as high as $80.20 earlier, 2 cents above the previous intraday trading record set Wednesday.

October gasoline rose 2.72 cents to $2.0432 a gallon in Thursday.

The front-month oil contract first surpassed $80 on Wednesday before settling at a record of $79.91 a barrel. Despite its gains, oil is still well below inflation-adjusted highs hit in early 1980. Depending on the adjustment, a $38 barrel of oil in 1980 would be worth $96 to $101 or more today.

Oil’s runup has come despite OPEC’s decision on Tuesday to boost output by 500,000 barrels, a move driven in part by concerns that high oil prices are hurting the global economy. Many analysts are perplexed by the high prices, arguing that they have been driven by a flood of speculative buying. Many believe demand does not support such high prices.

“The world economy in the last few years has shown to be quite resilient to strong oil pricing, but this is certainly a new territory for crude oil and if sustained there is bound to be some impact on the economy,” said Victor Shum, an energy analyst at Purvin & Gertz in Singapore.

James Cordier, president of Liberty Trading Group in Tampa, Fla., notes that oil prices often peak in September, and follow demand lower in the fall.

“We’re really wondering where demand will come from to support $80 crude oil,” Cordier said.

In other Nymex trading, heating oil futures lost 0.21 cent to $2.217 a gallon, while natural gas lost 27.3 cents to $6.165 per 1,000 cubic feet after the government reported that inventories grew by 64 billion cubic feet last week, slightly more than the 62 billion cubic feet analysts had expected.

In London, October Brent crude fell 25 cents to $77.40 a barrel on the ICE futures exchange.

At the pump, meanwhile, gas prices slipped 0.7 cent overnight to a national average of $2.808 a gallon, according to AAA and the Oil Price Information Service. Retail prices, which typically lag the futures market, peaked at $3.227 a gallon in late May.

Analysts say much of the recent advance in crude prices has been due to buying by large investment funds.

“Most large financial institutions have gone long on crude, and each new high tested equates to substantial profits,” wrote Simon Wardell, an energy analyst at Global Insight in London, in a research note.

But such jumps in speculative buying often carry their own seeds of destruction, notes Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Ill.

“At some point, a saturation level will be achieved as was the case at the end of July when the net long fund position peaked,” Ritterbusch wrote.

After oil hit then-record trading prices above $78 a barrel on Aug. 1, futures dropped to the $69 level in a few weeks.

Despite oil’s run, Cordier doesn’t believe gas prices will rise substantially. Gasoline demand typically drops in the fall, and beginning Saturday, refiners will be able to sell cheaper winter-grade gasoline.

“Gasoline just really has a difficult time staying high this time of year,” said Cordier.

Associated Press Writers Pablo Gorondi in Budapest and Gillian Wong in Singapore contributed to this report.

http://biz.yahoo.com/ap/070913/oil_prices.html?.v=15

 

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