October 7, 2004
By JAD MOUAWAD
PARIS, — Over the summer, rising oil prices meant higher gasoline costs for drivers in the United States. This winter, as crude oil touched $53 a barrel today, they will translate into higher heating bills for American households.
In New York, crude-oil futures broke a record today, closing at $52.67. The contract is up nearly $20 a barrel this year. Heating-oil contracts for November delivery rose $1 to $143.09 a gallon, the highest since the contract began trading in 1978.
The price of heating oil has risen in recent weeks after some refineries in the Gulf of Mexico were turned off ahead of the passage of Hurricane Ivan, which coincided with a seasonal maintenance period. As a result, heating-oil stocks are lower than they were a year ago, raising worries about tight supplies this winter.
"The market has switched some of its concern from gasoline to heating oil," said Craig Pennington, the head of global energy at Schroders. "It's getting jittery at a time when inventories need to rebuild."
Compounding to the disruptions from the United States, the main oil workers' union in Nigeria said today it would join a national strike, set to begin next week, unless the government agreed to talks on rising fuel prices, The Associated Press reported. Nigeria, which produces more than two million barrels a day, is the fifth-largest source of crude for the United States.
Also, Nigerian oil workers at Shell started a surprise two-day strike today to protest against job cuts. Shell accounts for about half of Nigeria's daily oil production.
Some analysts now say crude oil prices could reach $60 a barrel, double last year's prices, if supplies were suddenly interrupted or in the event of a very cold winter.
For prices to drop, oil markets "need reassurance about Gulf of Mexico production coming back on stream and they need reassurance about Nigeria," Mr. Pennington said.
To make up for lost production in the Gulf of Mexico, the Bush administration has approved five oil loans, totaling 4.7 million barrels, from federal stockpiles. But the government has so far opposed releasing oil from its Strategic Petroleum Reserve, which it is instead filling to capacity.
This year, oil prices have been driven up more than 60 percent by the highest demand growth in a quarter of a century. That has stretched production capacity worldwide, leaving the world with little spare capacity to make up for eventual shortages in oil supplies.
Although there have been no major interruptions in global supplies, exports from countries like Iraq, Venezuela or Nigeria have been unreliable for more than a year.
The latest distraction has been a string of severe hurricanes hitting the Caribbean. The disruptions caused by Hurricane Ivan, which hit the Florida panhandle and other gulf areas three weeks ago, "have been a shock to the market," said Doug Leggate, an oil analyst at Smith Barney.
"This has surprised everyone," Mr. Leggate said. "But it's not a demand thing, it's all about the storms."
Output in the Gulf of Mexico, which accounts for a quarter of American domestic production, is still down by a third, or 470,000 barrels a day, according to the federal Minerals Management Service.
Many traders had underestimated how long it would take to repair damages done to some of the 4,000 platforms in the area. As of Wednesday, more than 16.6 million barrels of oil have been lost because of Ivan, or 2.7 percent of the region's yearly production.
According to preliminary estimates from the Department of the Interior's M.M.S., seven platforms were destroyed by the hurricane, four were heavily damaged, and 13 leaks in oil and gas pipelines were reported. It could take as long as three months to resume normal operations.
The impact of rising oil prices on the economy has so far been limited. But with next month's presidential elections looming, the rising costs to American wallets could become an electoral issue.
Still, rising prices could curb demand in the second half of the year, said Mr. Pennington of Schroders. "Will we see a demand shock?" he said. "I don't think so. It's going to be a gradual downturn in demand as high prices start to bite."
Homeowners in the Northeast, for example, will spend an average $1,223 this winter on heating oil. That's 28 percent, or $270, more than last year, according to the annual winter outlook published by the federal Energy Information Administration.
In the Midwest, expenditure on propane will increase 22 percent to $1,396 and natural gas expenditure for household heating will rise 15 percent compared with last year to about $1,003, the E.I.A. said.
"Heating-fuel expenditures per household are expected to rise this winter in all regions of the country, reflecting both higher fuel prices and, in some areas, colder weather than last year," the E.I.A., a unit of the Department of Energy, said in the report released Wednesday.
Last year, heating expenditures were unchanged mainly because of a mild winter, the E.I.A. said. The report provides the government's outlook between October 2004 and March 2005.
Meanwhile, the National Oceanic and Atmospheric Administration said it expects colder-than-normal winter temperatures in the Southeast and mid-Atlantic regions. But for the Midwest and Northeast, N.O.A.A. said chances were split of getting colder, warmer or average temperatures.
Oil inventories in the United States grew by 1.1 million barrels to 274 million barrels in the week ended Oct. 1, the Energy Department said Wednesday. That is 4 percent below year-ago levels.
http://www.nytimes.com/2004/10/07/business/07CND-OIL.html?ex=1097812800&en=7138c86135454be8&ei=5006&partner=ALTAVISTA1