Oil prices are rising to new record highs and will doubtless rise further after Category 5 Hurricane Katrina changed course and gained in strength Saturday. -- The immense storm, with winds over 156 mph causing storm surges of more than 19 feet, is about to devastate territory that is vital to the global oil industry. -- On Sunday evening, the New York Times reported that NYMEX crude oil futures reached $70.80 a barrel, passing the $70 mark for the first time as ExxonMobil/Petróleos de Venezuela's Chalmette Refinery (190,000 barrels/day), Valero Energy's St. Charles refinery, Chevron's Pascagoula refinery, and the Louisiana Offshore Oil Port shut down and Royal Dutch/Shell announced it had shut down production (420,000 barrels/day) and evacuated employees. -- The impact of Katrina could be felt for more than a year, Bloomberg News reported, noting that Katirna will "be only the third storm of [Category-5] magnitude to hit the U.S. since the government began keeping storm records." -- Reporter Gavin Evans added ConocoPhilips Alliance refinery to the list of those shut down. -- Reuters reported that "More than 40 percent of all U.S. Gulf of Mexico crude oil production was reported closed down as a result of the hurricane, with the total expected to rise significantly as more operators report affected production to the U.S. government on Monday. . . . The U.S. Gulf of Mexico normally pumps about 1.5 million barrels per day (bpd) of crude, a quarter of domestic output and equivalent to nearly 2 percent of global oil production." -- David Thurtell, a commodity strategist at Commonwealth Bank of Australia, said: "We can expect two months of lost production, and coming in the peak demand period this is the worst possible news. The only way we can avoid yet higher prices is if President Bush releases supply from the Strategic Petroleum Reserve." -- To the list of facilities shut down already mentioned, Reuters added Murphy Oil Corp's 120,000 bpd Meraux plant. -- AP quoted Peter Beutel, an oil analyst with Cameron Hanover: "'This is the big one,' he said. 'This is unmitigated, bad news for consumers.' -- Gasoline prices could see the largest spikes because so many refineries in the region could be shut down by flooding, power outages, or both, energy analysts said." ...
APPROACHING STORM SLOWS OIL OUTPUT IN GULF OF MEXICO
By Simon Romero
New York Times
August 28, 2005
HOUSTON -- Energy companies rushed to shut down oil rigs and refineries and evacuate employees in the Gulf of Mexico as Hurricane Katrina approached over the weekend, shrinking oil output in the area at a time when markets are already on edge over surging energy prices.
Crude oil futures on the New York Mercantile Exchange climbed as high as $70.80 a barrel on Sunday night as traders factored in the threat to the most important oil-producing region in the United States. That was up $4.67 from the close on Friday. Oil prices have never risen above $70 a barrel, but when adjusted for inflation they are still lower than they were in the early 1980's.
The evacuations, which were mostly completed by Sunday, cut oil production in the Gulf of Mexico by more than 600,000 barrels a day, or more than a third of the area's normal output of 1.5 million barrels a day. Large refining and oil-shipping installations in southern Louisiana, where the hurricane was expected to make landfall early Monday, also shut down over the weekend.
"The oil market is going to be on fire until we figure out exactly what is going on," David Pursell, a principal with Pickering Energy Partners in Houston, said in a telephone interview on Sunday. "There's fear on several fronts, from the capacity of this storm to tear up pipelines on the ocean floor to doing extreme damage to port infrastructure and platforms."
Speculation about a possible release of oil from the government's Strategic Petroleum Reserve led to a drop in oil prices at the end of last week, though traders said talk about such a plan was premature. The Bush administration has been hesitant to release oil from the reserve, which has 700 million barrels of oil, despite calls from Democrats in Congress to do so.
The focus on the reserve is bound to intensify as the hurricane takes its toll. The storm is expected to be the biggest disruption to oil production in the gulf since Hurricane Ivan last year, which reduced the area's yearly output by 7 percent after destroying 7 platforms and damaging more than 100 underwater pipelines. The Gulf of Mexico accounts for about a quarter of the nation's overall domestic oil production.
Gasoline prices for consumers may climb further as refining capacity is stretched by the storm. Chalmette Refinery, which is about 10 miles east of downtown New Orleans and processes 190,000 barrels of oil a day, shut down over the weekend. Calls to officials at Chalmette, a venture between Exxon Mobil and Petróleos de Venezuela, went unanswered on Sunday. Valero Energy said it was shutting down its St. Charles refinery in Louisiana, and Chevron was shutting down a refinery in Pascagoula, Miss., Bloomberg News reported.
Elsewhere, the Louisiana Offshore Oil Port, the nation's largest oil-importing terminal, 19 miles off the coast of Louisiana, stopped receiving crude oil from supertankers on Sunday. Altogether, about 6.5 million barrels of crude oil a day are imported along the Gulf Coast, largely to ports in Louisiana and Texas, while roughly 1.5 million barrels of oil a day are produced in domestic waters in the Gulf of Mexico.
Royal Dutch Shell, the largest oil producer in the gulf, said in a statement that it had evacuated 983 employees and shut down production of 420,000 barrels of oil and 1.345 million cubic feet of natural gas a day.
OIL SOARS TO RECORD AS HURRICANE KATRINA SHUTS U.S. PRODUCTION
By Gavin Evans
August 29, 2005
WELLINGTON, NEW ZEALAND -- Crude oil soared to a record above $70 a barrel in New York after Hurricane Katrina forced companies including Exxon Mobil Corp. and Chevron Corp. to shut operations in the Gulf of Mexico.
Oil had its biggest gain in 29 months while gasoline and heating oil reached records as Katrina, one of the most powerful storms to hit the U.S., crossed the Gulf, source of 30 percent of the country's oil output and 24 percent of its natural gas.
"Forecasters are saying Katrina could do more energy damage than any storm in recent years," Jason Schenker, an economist with Wachovia Corp. in Charlotte, North Carolina, said before the start of trading. "It's not just that there's going to be outages for the next couple of days. With shutdowns and damage at platforms and refineries, the bullish impact could be felt for the rest of the year."
Crude oil for October delivery rose as much as $4.67, or 7 percent, to $70.80 a barrel in electronic after-hours trading on the New York Mercantile Exchange. It was at $69.65 a barrel at 9:14 a.m. Singapore time.
International Monetary Fund Managing Director Rodrigo de Rato said last week that "rising oil prices will present an increasing risk" to global economic expansion. U.S. wholesale prices rose in July by the most in nine months on energy costs, reinforcing expectations the Federal Reserve will raise interest rates to fight inflation. In the same month, China's crude oil import bill rose 61 percent to $4.2 billion.
Natural gas for September delivery gained as much as 23 percent to $12.07 per million British thermal units, the biggest one-day rise for 11 months. It was at $11.780 at 9:17 a.m. Singapore time.
Royal Dutch Shell Plc said it has shut 420,000 barrels of daily oil production in the Gulf because of Katrina. The Louisiana Offshore Oil Port, which handles about 11 percent of U.S. imports, closed Aug. 27 and has since halted all oil movements to shore.
Exxon Mobil Corp., the world's largest oil company, evacuated workers and shut about 50,000 barrels of daily oil production and 300 million cubic feet of gas, spokeswoman Susan Reeves said. The company removed 430 employees and contractors from its Gulf facilities last night, she said.
Chevron, the second-largest U.S. oil company, did not have figures immediately about the amount of oil and natural gas that will be shut, spokesman Matt Carmichael said. "We are still doing the math," he said.
STATE OF EMERGENCY
Katrina is a Category-5 storm, the most severe on the Saffir-Simpson scale of hurricane strength. It would be only the third storm of that magnitude to hit the U.S. since the government began keeping storm records.
States of emergency have been declared in Louisiana and Mississippi. New Orleans, a city of 500,000 within a metropolitan area of 1.3 million, is being evacuated of all but essential personnel. Much of the city, 100 miles upriver from the Gulf, lies below sea level.
Katrina was centered about 150 miles (240 km) south of the mouth of the Mississippi River at 4 p.m. local time, the National Hurricane Center said in its most recent advisory on its Web site. The storm was moving northwest at 13 mph, and is likely to make land early Monday local time, the center said.
"The storm is more severe than we've thought; it's turned into a monster," said Paul Sankey, senior oil analyst with Deutsche Bank Securities in New York. "The amount of lost production is equal to almost all the spare capacity in the world."
Oil prices jumped 22 percent in the month after Hurricane Ivan, the third most costly hurricane in U.S. records, tore through the Gulf last September, toppling platforms and damaging underwater pipelines.
Lost production in the Gulf because of Ivan peaked Sept. 16 at 1.4 million barrels of oil daily and 6.5 billion cubic feet of gas, according to the U.S. Minerals Management Service, which oversees offshore production. Shut production from Katrina could match those numbers, Sankey said.
U.S. supplies of refined products, including gasoline, jet fuel and diesel, may also decline as refineries near the path of the storm also shut down. ConocoPhillips, the biggest U.S. refining company, shut its Alliance refinery south of New Orleans. Chevron Corp. and Valero Energy Corp. also shut refineries and evacuated staff.
Record energy prices are hurting economies across Asia. Indonesia's rupiah last week slumped 4.1 percent, the most in three years, on concern about the country's ballooning oil import bill. Malaysia's inflation has more than doubled in a year, while Thai consumer confidence fell in July to a three-year low.
China Petroleum & Chemical Corp., Asia's biggest refiner, said today first-half profit rose 17 percent, less than a third of the year-earlier gain, as oil costs cut earnings from making fuels and chemicals.
Air New Zealand Ltd., that nation's biggest airline, forecast its full-year profit may tumble as much as 40 percent should jet fuel prices hold near their recent record levels.
Gasoline for September delivery rose as much as 21.31 cents, or 11 percent, to $2.14 a gallon in after-hours electronic trading at 8:57 a.m. Singapore time.
Heating oil for September delivery rose as much as 16.94 cents, or 9.2 percent, to $2.0060 a gallon. It was at $2.0051 at 9:20 a.m. Singapore time.
OIL SURGES OVER $70 ON KATRINA
By Paul Marriott
August 29, 2005
SYDNEY -- U.S. oil prices surged to a record above $70 a barrel on Monday as one of the country's biggest storms tore through the U.S. Gulf of Mexico, forcing oil producers and refiners to shut down operations.
U.S. crude oil futures soared nearly $5 a barrel in opening trade to touch a fresh peak of $70.80 a barrel, surpassing last week's $68 high to the highest price since the New York Mercantile Exchange (NYMEX) began trading contracts in 1983.
It later traded up $3.42 a barrel, 5.2 percent, at $69.55.
Oil product and natural gas prices also shot higher to records, with gasoline soaring 10 percent to $2.13 a gallon and heating oil rocketing past $2 a gallon for the first time. Natural gas prices were up 20 percent.
Prices leapt as Hurricane Katrina, the eleventh named storm of what is expected to be an unusually severe season, threatened to do lasting damage to the vital U.S. oil and refining region, further straining an industry that has struggled to keep up with two years of strongly rising oil demand.
More than 40 percent of all U.S. Gulf of Mexico crude oil production was reported closed down as a result of the hurricane, with the total expected to rise significantly as more operators report affected production to the U.S. government on Monday.
Katrina revved up to a maximum Category 5 hurricane at the weekend, far stronger than last year's Hurricane Ivan, which tore up platforms and pipelines along a very similar path through the Gulf, disrupting oil production for months.
The U.S. Gulf of Mexico normally pumps about 1.5 million barrels per day (bpd) of crude, a quarter of domestic output and equivalent to nearly 2 percent of global oil production.
"This is certainly reminiscent of Ivan last year," said David Thurtell, commodity strategist at the Commonwealth Bank of Australia.
"We can expect two months of lost production, and coming in the peak demand period this is the worst possible news. The only way we can avoid yet higher prices is if President Bush releases supply from the Strategic Petroleum Reserve."
The administration has said in the past it would release oil from the 700-million-barrel SPR only during a serious supply disruption, but has never given further details.
In New Orleans, hundreds of thousands of residents were advised to leave as Katrina was expected to make landfall near the low-lying Gulf Coast city around sunrise on Monday.
Apart from the impact on crude production, dealers fear the storm will tighten supplies of consumer fuels. Gasoline stockpiles are already at the low end of their seasonal norm.
Seven southeast Louisiana refineries with a combined daily refining capacity of 1.449 million barrels of crude oil had shut down ahead of Katrina making landfall, an amount equal to 8.5 percent of total U.S. refining capacity.
Two of those refineries near New Orleans -- the 190,000 bpd Chalmette Refining LLC and Murphy Oil Corp's 120,000 bpd Meraux plant -- appeared to be directly in the path of the storm.
Dealers are particularly concerned about damage as the Organization of the Petroleum Exporting Countries (OPEC) is already pumping at near its full capacity, leaving it little room to make up for any lasting outages.
OPEC's president said at the weekend that soaring prices were of rising concern to the cartel, which controls half the world's oil exports, but that they should begin to eases as higher costs begin to curb demand.
"OPEC will be exploring various options for the September meeting which will hopefully contribute to moderate prices," said OPEC President Sheikh Ahmad al-Fahd al-Sabah, also Kuwait's oil minister, in an English language statement in Kuwait City.
He did not elaborate on the nature of these options. OPEC meets on Sept. 19 to chart output policy.
Production elsewhere in the world was also under strain, with Iran's 90,000 barrel-per-day Nowruz oilfield, being developed by Royal Dutch/Shell, shut down owing to technical problems, a senior Iranian oil official was quoted as saying on Saturday.
And in Ecuador, where output has only just returned to normal after being hobbled by a week-long protest, activists vowed on Sunday to resume protests within the next 48 hours if energy firms to not agree to increase local investment.
ANALYSTS SEE KATRINA AS 'PERFECT STORM' FOR ALREADY HIGH ENERGY PRICES
By Justin Bachman
August 28, 2005
NEW YORK -- With crude oil prices already near record levels, hurricane Katrina targeted the heart of America's oil and refinery operations Sunday, shutting down an estimated one million barrels of refining capacity and sharply curbing offshore production in the region.
It is an area crucial to the country's energy infrastructure -- offshore oil and gas production, import terminals, pipeline networks and numerous refining operations throughout southern Louisiana and Mississippi.
The impact was immediate Sunday night when electronic trading resumed on the New York Mercantile Exchange, as crude oil futures spiked $4.50 US per barrel, putting the cost above $70 for the first time since oil began trading there in 1983.
The Category 5 storm was still churning in the Gulf of Mexico but was on a path to hit New Orleans early Monday.
Last September, hurricane Ivan also swept across the region causing heavy damage and reducing the region's output for months.
With winds of 265 kilometers an hour, Katrina was fiercer.
Oil companies evacuated workers and shut down more than 600,000 barrels of daily production in the Gulf. Refiners closed down more than one million barrels of refining output by Sunday, but that amount could be higher because not every producer reports data, said Peter Beutel, an oil analyst with Cameron Hanover.
"This is the big one," he said. "This is unmitigated, bad news for consumers."
Gasoline prices could see the largest spikes because so many refineries in the region could be shut down by flooding, power outages, or both, energy analysts said.
The U.S. has ample crude oil supplies, even if major hurricane destruction trims Gulf oil output and foreign imports, but refining capacity is extraordinarily tight. As a result, prices for gasoline, heating oil, jet fuel and other products have flirted with records and could go even higher this week.
"If this thing knocks out significant quantities of refining capacity . . . we're going to be in deep, dark trouble," said Ed Silliere, vice-president of risk management at Energy Merchant LLC in New York.
The market has been on edge for months, with traders and speculators buying on the slightest fear. With Katrina, all those fears could be realized, Beutel said.
"Basically I could spill a can of oil at my local gas station and you'd see the price of crude go up by $1 per barrel," he said, predicting futures would likely top $70 per barrel in coming sessions.
Crude settled at $66.13 a barrel Friday on the New York Mercantile Exchange, down $1.36 after hitting $68 last week.
In many ways, Katrina was expected to be inconsequential to the energy industry, with many traders selling Friday as the storm moved across Florida and was seen as moving north and striking the Florida Panhandle as a tropical storm with little impact. That all changed Saturday, when the system gained power and charged west, directly into areas of offshore oil production.
ChevronTexaco Corp. completed evacuations of all workers in the eastern and central Gulf of Mexico and nonessential workers in the western Gulf late Saturday, company spokesman Matt Carmichael said.
Chevron has about 2,100 employees and contractors working in the Gulf, Carmichael said. Chevron will continue to produce 90 per cent of its normal production by remote as long as weather co-operates, he said.
The Louisiana Offshore Oil Port, which processes loads from tankers too large for mainland ports, evacuated all workers and stopped unloading ships Saturday morning said Mark Bugg, the terminal's manager of scheduling. The LOOP, 30 kilometres offshore, is the country's largest oil import terminal and handles 11 per cent of U.S. oil imports.
Royal Dutch-Shell Group evacuated more than 1,000 offshore workers by Saturday. Only those in the far west remained, the company said on its website. BP PLC and ExxonMobil Corp. also brought workers ashore Saturday.