September 15, 2004
By Tanya Pang
SINGAPORE (Reuters) - Oil prices headed up toward $45 a barrel on Wednesday as Hurricane Ivan shut 60 percent of crude output in the Gulf of Mexico and at least five refiners along the U.S. coast planned to close as a precaution.
The suspension of crude exports from northern Iraq due to the sabotage of a pipeline and expectations U.S. crude stocks would decline for a seventh straight week when official data is released later on Wednesday also helped boost prices.
U.S. light crude climbed 40 cents to $44.79 a barrel, the third day in a row that prices have risen as Ivan, one of the fiercest Atlantic storms on record, swept toward the Gulf of Mexico where 25 percent of U.S. oil and gas is produced.
Oil companies have shut just over 1 million barrels per day (bpd), or 61 percent, of offshore crude oil output. Gas production was also reduced as thousands of workers were evacuated from offshore platforms and rigs.
At least 985,000 bpd of refining capacity in Louisiana and Mississippi was also expected to shut as a precaution against the storm, the largest refinery being ChevronTexaco's (CVX) 350,000 bpd plant in Pascagoula, Mississippi.
"The big concern is the potential for refinery flooding and other damage that may have a longer-term impact on production," said Ed Silliere, a trader at Energy Merchant.
Oil products prices have rallied strongly, with key heating oil futures climbing more than 7 cents to $1.2380 a gallon since last Friday.
U.S. oil prices have gained almost $2 this week due to the hurricane and the stoppage of some Iraqi exports as fears of supply hiccups have heightened after U.S. government figures last Thursday showed national crude stocks falling more than 6 percent in the past two months to the lowest level since March.
Saboteurs blew up a strategic junction of oil pipelines in northern Iraq on Tuesday, halting 200,000-300,000 bpd of Kirkuk crude exports to Turkey's Mediterranean port, Ceyhan.
FALLING INVENTORIES
Analysts expected U.S. crude inventories to fall again for a seventh week when the Energy Information Administration releases its weekly oil stockpile report at 10:30 a.m. EDT.
A Reuters poll of 11 analysts forecast crude stocks to have dipped by 1.9 million barrels in the week to Sept. 10. The survey predicted an average fall in gasoline stocks of 338,000 barrels and a rise in distillate inventories of 161,000 barrels.
Distillates include heating oil and stocks should normally rise at this time of year as refiners turn up production ahead of peak winter demand.
"We're still at the low end of normal stocks in key consuming countries and the combination of that, with strong demand and the perception that OPEC is at full production capacity, puts prices where they are today," said Paul Ashby at ABN Amro in Sydney.
Top exporter Saudi Arabia said on Tuesday that $40 was too high a price for oil and supply/demand fundamentals did not support that level.
Ministers from the Organization of the Petroleum Exporting Countries meet in Vienna at 5 a.m. EDT on Wednesday to review production policy at a time when the cartel is pumping near flat out at the highest rate since the late 1970s.
A senior delegate said on Tuesday that Gulf OPEC oil ministers will propose raising the group's formal output ceiling by 1 million bpd. The Gulf OPEC countries are Saudi Arabia, Kuwait, the United Arab Emirates and Qatar.
The rise would legitimize half of what OPEC is producing over and above its official output limits of 26 million bpd to try and cool world prices, which have rallied to record peaks this year with U.S. crude reaching $49.40 a barrel last month.
Ministers may be reluctant to raise the existing production ceiling by the full 2 million bpd of oversupply that OPEC is currently pumping in case prices fall sharply.
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