October 7, 2004
By BRAD FOSS, AP Business Writer
WASHINGTON - Oil prices reached $53 a barrel on Thursday, and have advanced more than 20 percent in a month, in large part because output in the Gulf of Mexico was hobbled by a hurricane and has not been restored as quickly as expected.
The possibility of violence and a labor strike in oil-rich Nigeria has also kept oil traders on edge, and underlying it all is global unease about the fact that the world's available supply cushion is too thin to make up for any large, prolonged loss of output.
Light crude for November delivery climbed 65 cents to settle at a new high of $52.67 per barrel Thursday on the New York Mercantile Exchange, retreating from a high of $53 set earlier in the day. In London, Brent crude for November delivery soared 91 cents to close at $48.90 per barrel.
While oil prices are 73 percent higher than a year ago, when adjusted for inflation, they remain about $27 below the peak reached in 1981.
"The market is in this raging bull up move," said Tom Bentz, a trader at BNP Paribas Futures in New York. "The way this thing is accelerating is making me wonder if I've underestimated how bullish this thing really is."
Oil and gas producers and pipeline companies operating in the Gulf of Mexico say it could be a few months before damage assessments of platforms and other infrastructure are complete, enabling operations to resume fully.
In some cases, damage to pipelines makes it impossible for producers to begin pumping fuel. In others, pipeline operators say oil and gas producers are not maximizing the transport capacity available to them.
BP PLC says it has four production facilities in the Gulf of Mexico, producing some 200,000 barrels of oil equivalent per day, that are ready to pump fuel but must wait for pipeline repairs and inspections to be completed.
El Paso Corp. says repairs continue on two pipeline systems it owns, and that full capacity has not been restored, but that producers are not transporting as much fuel as is currently possible anyway. Its Tennessee Gas pipeline is carrying 700 million cubic feet of natural gas per day, down from 1 billion cubic feet a day before Hurricane Ivan, while its Southern Natural Gas pipeline is carrying 370 million cubic feet of natural gas per day, down from 500 million cubic feet before the storm.
Whatever the reasons, the Minerals Management Service reported Thursday that 16.6 million barrels of oil production have been lost in the Gulf of Mexico since Sept. 13, when crews began evacuating the region ahead of Hurricane Ivan, and that output remains 475,000 barrels a day below normal.
Natural gas production in the region is down 72.3 billion cubic over that period, with daily output still falling 1.78 billion cubic feet below pre-hurricane levels.
These output disruptions have come at a time of year when demand typically tapers off, but the loss of supply is nonetheless significant because this is when utilities begin socking away enough fuel to meet winter demand.
Moreover, analysts are already anxious that the world's surplus available oil-production capacity, or supply buffer, is dangerously thin, at 1 percent above global demand. As a result, fears of supply disruptions in Iraq, Russia, Venezuela and Nigeria have pushed prices higher for several months.
Nigeria's main oil workers' union said it would join a national strike, set to begin next week, unless the government agreed to talks on rising fuel prices. And a militia leader who has become a hero to many in the country's oil-rich south backtracked Wednesday from earlier pledges to disarm, saying he doubted the government would satisfy his demands.
Traders said they were also keeping an eye on Norway, where an oil-rig strike is expected to cut output by some 55,000 barrels a day, the Norwegian Shipowners Association told Dow Jones Newswires.
OPEC has tried to cool the market off on several occasions by promising to pump more oil, but the efforts have largely failed since much the crude it has made available has a high-sulfur content, making it less desirable for refiners. Moreover, analysts say it will be months before state- and privately-owned oil companies can crank up their production to a level that will significantly outpace the world's growing thirst for oil.
"We have undergone such a long period of underinvestment in the oil and gas industry, and the market is currently trying to catch up," said Aliza Fan, a senior equity analyst at John S. Herold in Houston.
While Fan expects oil prices to eventually revert to the mid-$30 a barrel level, she said the production snags in the Gulf of Mexico could prove to be a serious problem for the country's energy supply if the weather this winter is colder than normal.
The Energy Department warned Wednesday that American homeowners should expect their heating bills to rise this winter due to double-digit price increases for heating oil and natural gas. Heating oil prices are up 75 percent from last year, while natural gas prices are up 41 percent.
November heating oil futures rose 1 cent to $1.4309 per gallon on Nymex, where natural gas for November delivery surged 21 cents higher to $7.255 per 1,000 cubic feet.
Gasoline prices are also strong, averaging $1.94 per gallon at the pump nationwide — a 36.5-cent increase from a year ago. Gasoline futures climbed 1.44 cent to $1.4019 per gallon.
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