Sept. 16, 2004
By BRAD FOSS
AP Business Writer
WASHINGTON (AP) -- With Hurricane Ivan expected to lash the Gulf Coast with 135 mph wind on Thursday, oil markets remain tense over the possibility that lasting damage to production platforms or refineries could disrupt the nation's energy-supply chain, sending fuel prices even higher.
"We'll just have to wait and see what happens," said Peter Beutel, president of Cameron Hanover Inc., a New Canaan, Conn.-based energy consulting group.
About three-quarters of the manned platforms and more than half of the rigs currently operating in the Gulf of Mexico have been evacuated, according to the federal Minerals Management service, shutting in 1.3 million barrels per day of oil production and 6 billion cubic feet of natural gas.
That is about 77 percent of total daily oil production and 49 percent of total daily natural gas production in the Gulf, which accounts for roughly a quarter of the oil and natural gas used in the United States.
But if Ivan does no major harm to oil industry infrastructure - which could take a few days to assess once the storm passes - analysts said oil, natural gas and gasoline could be produced again at close-to-normal rates by week's end.
"Historically, the market has tended to exaggerate the impact of hurricanes," said James Steel, director of commodities and oil research at Refco, a New York-based brokerage.
"Oil installations are by design incredibly hardy and they can take quite a pounding," he added. "The evacuations have been more of a safety issue for the personnel than it has been of the likely damage to any structure, whether it be an oil production platform or a refinery."
The expectation of only short-term turbulence within the petroleum sector helped push oil prices lower Wednesday, even as Ivan roared toward the Gulf Coast with 135 mph winds and after the government reported that weather-related tanker delays had caused a sharp drop in the nation's oil supply.
The decline followed a two-day surge in crude futures, suggesting traders locked-in profits once they sensed prices had risen too high on Ivan-related supply fears.
OPEC's announcement Wednesday that it would raise its official output target by 1 million barrels a day to 27 million barrels had little effect on oil markets because the cartel has been exceeding that quota since the beginning of the year, analysts said.
While retail gasoline prices already have nudged higher in recent days in some parts of the country as a result of supply disruptions and fears stoked by Ivan and other tropical storms, analysts said the impact should be short lived. The average retail price of gasoline was $1.85 a gallon last week.
Tuesday's shutdown of the Louisiana Offshore Oil Port - the primary import facility in the United States - means an additional 1 million barrels of oil a day has been taken away from the U.S. market. Moreover, roughly 1 million barrels per day of refining capacity has already been shut down in Mississippi and Louisiana and analysts said that number was likely to rise.
ChevronTexaco Corp. has closed a refinery in Pascagoula, Miss., that can process about 350,000 barrels a day, while the closure of two Motiva Enterprises refineries outside of Baton Rouge and New Orleans takes out an additional 450,000 barrels a day.
Valero Energy Corp. said it was bringing down its 78,000 barrels a day refinery in Krotz Springs, La., and that a refinery in St. Charles, La., would reduce output by more than 150,000 barrels a day because of a lack of incoming crude oil, Valero said in a statement.
Tom Kloza, director of Oil Price Information Service in Lakewood, N.J., said he expected hurricane-related refinery shutdowns to cause U.S. gasoline supplies to decline by as much as 5 million barrels, or roughly 2 percent.
It's a significant amount, Kloza said, but fortunately for U.S. motorists and the economy, it comes as demand is naturally tapering off after the busy summer driving season.
"In the Southeast we're going to see some significant price increases in the next 10 days," Kloza said. "But it shouldn't last. By the time the leaves start changing, Ivan will be in the rearview mirror."
The only caveat, he added, is if refineries and production platforms in the Gulf aren't back up and running within a few days after the storm passes. In fact, the disruptions have already taken a toll on U.S. supplies.
The Energy Department said Wednesday that commercially available inventories of crude fell by a larger-than-expected 7.1 million barrels in the week ended September 10, leaving supplies at 278.6 million barrels, or 1 percent below last year's level.
But analysts had expected oil tanker delays related to an earlier hurricane, Frances, to skew oil-supply data to the downside and this view appeared to temper concerns.
The Energy Department echoed that sentiment in its weekly report, by saying that "unless storms continue to wreak havoc with Gulf Coast shipping ... all the tankers waiting to offload their crude oil will eventually make it to their respective ports and we would see high amounts of imports and a build in crude oil inventories after the storms have passed."
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