1.

Markets

Commodities

CRUDE HITS NEW HIGH ON PRODUCTION FEARS
By Kevin Morrison

Financial Times (UK)
August 30, 2005

http://news.ft.com/cms/s/267c220e-193d-11da-804e-00000e2511c8.html

The price of crude oil and petrol futures struck fresh record highs on Tuesday on uncertainty about the extent of lost U.S. petroleum refining production following damage caused by Hurricane Katrina to refineries along the U.S. Gulf of Mexico coastline.

Oil futures in both London and New York reached new nominal highs. IPE Brent for October delivery peaked at $68.89 a barrel, before easing to $67.57, a rise of a hefty $2.70 on the day in late London trade, a 4.2 per cent rise.

The October West Texas Intermediate contract hit a new high of $70.85, before a bout of selling knocked prices down to $69.81, a gain of $2.61 on the day.

The jump in the front month WTI contract caused the long term WTI pricing structure to move back into backwardation, when near-term prices are higher than long term prices, for the first time this year. WTI prices had been trading in contango, when near-dated prices are below longer-dated prices, almost consistently since last autumn.

The contango price structure had encouraged crude oil and petroleum product inventory building. A move to backwardation implies that near term supplies are tighter.

Oil traders said prices have been pushed higher by petroleum products, particular petrol. September unleaded Nymex gasoline contracts struck a record high of $2.4100 a gallon, which equates to an eye-popping $101.22 a barrel. The front-month gasoline contract was trading at $2.3900, up 31.94 cents on the day, in early afternoon New York trade.

Oil analysts estimate that about 2m barrels a day of U.S. refining production had been shut down following the hurricane, or more than 12 per cent of total U.S. production. Analysts estimate that of this about 1.3m b/d is petrol production.

The output disruption has swelled refiner margins for petrol production to more than $20 a barrel, a far cry from the 1990s when refiners were incurring losses for each barrel of petrol produced.

“There does not seem to be too many refiners hedging (oil) at these prices, it appears to be more speculative activity, which throws some doubt on how sustainable this rally is,” said one London-based oil trader.

U.S. heating oil prices were also up sharply. September Nymex heating oil futures added 11.62 to $2.0250 a gallon, down from the record high of $2.060 hit earlier in the day.

Disruption caused by Hurricane Katrina also pushed U.S. natural gas prices higher with October Nymex henry hub natural gas touching $12 per million British thermal units for the second consecutive day.

Gold prices hit a four-week low of $429 a troy ounce on Tuesday, before ending London trade at $429.80/$430.60, down about $6 on the day following a firmer dollar. Silver and platinum prices also fell lower due to the dollar’s gain.

2.

Top Worldwide

OIL, NATURAL GAS RISE AFTER KATRINA DAMAGES U.S. GULF PLATFORMS
By Will Kennedy

Bloomberg News
August 30, 2005

http://quote.bloomberg.com/apps/news?pid=10000006&sid=aqCILCuXVszA&refer=home

Crude oil and natural gas climbed after Hurricane Katrina damaged platforms and ports and curtailed production at refineries as it slammed the Gulf of Mexico coast, the source of almost a third of U.S. oil output.

Royal Dutch Shell Plc said its 220,000 barrel-a-day Mars platform, which is able to pump as much as 15 percent of U.S. Gulf output, was damaged. Katrina, the strongest Atlantic storm this year, shut 92 percent of Gulf crude production and eight refineries. President George W. Bush may tap the U.S. strategic petroleum reserve to help producers compensate for disruptions.

"This could be defined as an emergency," said Tor Kartevold, an oil market analyst at Statoil ASA, Norway's biggest oil company, in Stavanger. "With damage to crude production, releasing oil from the strategic reserve would be a real buffer and could alleviate the situation."

Crude oil for October delivery rose as much as $1.28, or 1.9 percent, to $68.48 a barrel on the New York Mercantile Exchange, where it was up 78 cents at 10 a.m. London time. Oil, which reached a record $70.80 yesterday as the storm approached, has jumped 61 percent from a year ago.

The closest-to-delivery contract of U.S. natural gas, which yesterday reached a record $12.07 per million British thermal units on Nymex, today gained 4.6 percent to $11.648.

"The real fear is an extended outage," said Kurt Barrow, an energy consultant at Purvin & Gertz in Singapore. "We have notable capacity reductions in the U.S. Gulf Coast production, refining and distribution system."

UNDERSEA PIPELINES

Brent crude for October settlement added $1.72, or 2.7 percent, to $66.59 a barrel on London's International Petroleum Exchange, which was closed yesterday for a U.K. holiday.

Last year, oil prices gained 22 percent in the month after Hurricane Ivan damaged oil rigs, ripped up undersea pipelines and blocked with silt the ports oil companies use to supply and maintain facilities in the Gulf.

"It's caused serious disruption to oil refining and production capacity in the Louisiana region,'' said Angus Geddes, founder of research and fund management company Fat Prophets. "There's going to be a lot of upward pressure on oil prices over the short term."

Saudi Arabia is ready to increase crude oil output to 11 million barrels a day to make up any production lost because of damage from Hurricane Katrina, oil minister Ali al-Naimi said yesterday. Saudi Arabia, the world's largest oil exporter, produced 9.6 million barrels a day in July, according to Bloomberg estimates.

DELAYS POSSIBLE

Apache Corp., which closed 336 of its 386 facilities in the Gulf of Mexico, said it may be three or four days before it can assess the damage to its platforms.

Power cuts from the storm may delay refinery re-starts for days or even weeks, analysts including Petral Worldwide Inc.'s Daniel Lippe said.

Katrina forced the shutdown of at least eight oil refineries near the Gulf in Louisiana and Mississippi including ones operated by Exxon Mobil Corp. and Marathon Oil Corp. The shut refineries have a combined crude-oil processing capacity of about 1.79 million barrels a day, or 10.5 percent of total U.S. capacity.

That may reduce U.S. gasoline production by 800,000-to-900,000 barrels a day this week, said Andy Lipow, president of Lipow Oil Associates LLC, a Houston consultant. Refineries may take five to 10 days to restore normal output, he said.

LOOP AFFECTED

Gasoline for September delivery jumped 13.37 cents, or 6.9 percent, to close at a record $2.0606 a gallon in New York. Futures, which yesterday touched $2.1606, the highest intraday price since trading began in 1984, were at $2.0955 in after-hours trading.

The Louisiana Offshore Oil Port, the biggest U.S. oil import terminal, stopped unloading tankers on Aug. 28. T he LOOP is 20 miles off the coast and handles about 1 million barrels of crude oil a day, or 11 percent of U.S. imports.

The company was returning inspection staff to its onshore storage facilities with the goal of restoring shipments to refiners, scheduling manager Mark Bugg said yesterday. An aerial survey of the marine terminal is planned for today, he said.

"The biggest impact may be damage to the port facilities south of New Orleans," said Adam Sieminski, chief energy economist at Deutsche Bank AG in New York. "We have no way of knowing now how badly they are damaged."

NATURAL GAS

The storm shut 8.3 billion cubic feet of natural-gas output, equivalent to 83 percent of the total amount of gas produced in the Gulf. The report by the minerals service, which is part of the Interior Department, reflects information provided by 57 companies as of 12:30 p.m. New York time.

All coastal storm warnings have been discontinued, the National Hurricane Center said at 4 a.m. Miami time. The storm continues to weaken over northeastern Mississippi, the center said. Katrina made landfall on the Louisiana coast with winds of 145 mph yesterday morning.

U.S. crude-oil supplies jumped 1.9 million barrels in the week ended Aug. 19, the fourth-straight increase, to 322.9 million, according to an Energy Department report on Aug. 24. Stockpiles are more than 10 percent higher than a year ago.

The Organization of Petroleum Exporting Countries, which supplies about 40 percent of the world's daily oil needs, is "concerned" about the current high crude oil prices and believe they are not justified by supply and demand levels, acting Secretary-General Adnan Shihab-Eldin said.

Venezuelan oil minister Rafael Ramirez said yesterday that raising output quotas wouldn't have an impact on oil prices because OPEC members are already producing at fully capacity.

--To contact the reporters on this story: Will Kennedy in Singapore at wkennedy3@bloomberg.net.

3.

OIL SURGES ABOVE $70 A BARREL

Associated Press
August 31, 2005

http://news.moneycentral.msn.com/provider/providerarticle.asp?feed=AP&Date=20050831&ID=4160093

SINGAPORE -- Reports of extensive damage and photos of fallen oil platforms in the Gulf of Mexico sent crude oil prices surging above US$70 Wednesday, as the realities of the long-term damage from Hurricane Katrina began to sink in.

Royal Dutch Shell PLC's mammoth Mars platform became the latest -- and potentially the largest -- Katrina casualty, as aerial photos showed significant damage to the top of the facility that normally churns out 220,000 barrels of crude and 220 million cubic feet of natural gas a day.

The U.S. Coast Guard said at least seven rigs are adrift, while eight refineries have shut down. Companies continued to send planes and helicopters to get an aerial view of their assets and began escorting some previously evacuated workers back to offshore facilities.

Light, sweet crude for October delivery rose as high as US$70.57 a barrel on the New York Mercantile Exchange midmorning in electronic trading in Singapore, before slipping back to US$70.40, up 59 cents from Tuesday.

During New York trading, futures rose to an intraday record of US$70.85, before settling at US$69.81, a record close since trading began on the Nymex in 1983.

Oil prices are now more than 60 percent higher than a year ago, although still below the inflation-adjusted high of about $90 a barrel that was set in 1980.

"The markets are jumpy amid all the uncertainty and confusion, with much offshore production still shut in," said Energyintel analyst Tom Wallin. "Initial damage assessments from companies are mixed, but the rumors on the second day are that the damage could be heavy and extensive, supply curtailments could be long."

But Wallin said natural gas, not crude, was the commodity most likely affected by Katrina's wrath.

"Crude oil production could be replaced by a release of barrels from the U.S. strategic reserve, there is no such safety valve for natural gas," he said. "For gas, the fear is that commercial stocks could be severely dented, leaving inadequate inventories for the winter."

In Asia Wednesday, natural gas futures spiked 50 cents to US$12.151 per 1,000 cubic feet after earlier touching a record intraday price of US$12.30.

Gasoline was at US$2.5450 a gallon, up 7 cents, while heating oil was also up at US$2.0908 a gallon.

The U.S. Department of Energy is scheduled to release its midweek petroleum data snapshot that could show another fall in gasoline inventories, primarily from the summer driving season, analysts polled by Dow Jones Newswires said.

Crude and distillate stocks are likely to rise. Katrina's influence on U.S. stocks will only be realized in next week's report but some analysts already claim to know the score -- even if the Bush administration taps the nation's crude oil stockpile to help refiners.

"In the next few months, there's no upside," said economist Mark Zandi of Economy.com, an economic consulting service. "And this winter, we're going to feel it more noticeably as people pay record gas prices and record home-heating bills."

The Strategic Petroleum Reserve is the nation's emergency supply of 700 million barrels of crude oil buried in salt caverns in Texas and Louisiana.

U.S. President George W. Bush is expected to authorize the release of just enough oil from the reserve to help make up for production losses directly related to the powerful storm, with a stipulation that oil companies replace the oil later with a larger quantity.

Katrina's impact on energy markets could be immense, as there is very little excess capacity left globally to offset any production losses in a time of high demand.

The U.S. Minerals Management Service said Tuesday 95 percent of the Gulf of Mexico's oil output was out of service, with more than 4.6 million barrels of production lost since Friday. The agency said 88 percent of natural gas output was shut down, resulting in a loss of 25.4 billion cubic feet of lost production since Friday.

Some of the havoc Katrina caused included:

--Newfield Exploration Co. said one of its production platforms disappeared entirely.

--Rowan Cos. said it believes a rig capsized and sunk off the coast of Louisiana.

--An oil drilling platform washed up onto Dauphin Island, a weekend retreat off the Alabama coast, but it was not known where the platform came from.

--The Louisiana Offshore Oil Port, the largest oil import terminal in the United States, is closed.

--The Colonial Pipeline, which transports refined products such as gasoline, heating oil and jet fuel from Houston to markets as far away as the Northeast, remains offline.

Shell spokeswoman Darci Sinclair meanwhile, could not immediately say how damaged the Mars platform was until a full assessment was made.

Katrina has been downgraded to a tropical depression and was moving northeast through Tennessee at around 21 mph (33.79 kph), with the potential to dump 8 inches (20 centimeters) of rain and spin off deadly tornadoes.

The death toll from Katrina is expected to be in the hundreds, with millions more homeless.

The Organization of Petroleum Exporting Countries acting secretary general Adnan Shihad-Eldin said Tuesday he feared crude oil prices were nearing levels that the global economy could not keep pace with.

The cartel's biggest member, Saudi Arabia, said it was ready to boost output to 11 million barrels a day to replace any shortfalls in production but previous OPEC pledges have done little to ease market fears over supply.

In other market-related news, labor unions are considering strikes across Nigeria, Africa's largest oil producer, to protest a steep rise in fuel prices while in Australia's third-largest state, Queensland, output from the largest refinery there was also under threat from labor action.

4.

OIL PRICE RISES TO NEAR $71 AFTER HURRICANE KATRINA

Xinhuanet
August 31, 2005

http://news.xinhuanet.com/english/2005-08/31/content_3426055.htm

SINGAPORE -- Oil price, which crossed the 70-dollar mark in electronic trading Wednesday, was trading at the high of 70.50 dollars per barrel amid worries over Hurricane Katrina's impact on U.S. oil production.

At 7:00 am (2300 GMT) in Singapore, New York's main contract, light sweet crude for delivery in October was trading at 70.50 dollars per barrel, up 69 cents from its finish of 69.81 dollars in New York on Tuesday.

Light sweet crude price for October delivery surged to an all-time record high of 70.90 dollars before settling at 69.81 dollars per barrel in New York Tuesday, the highest since trading began in 1983, amid reports of drifting oil rigs and flooded refineries.

Meanwhile, the price of Brent North Sea crude oil for delivery in October hit a historic peak of 68.27 dollars Tuesday. It was its first ever stand above 67 dollars, beating its previous high of 66.85 dollars on Aug. 15.

Heating oil and gasoline futures also reached peaks on the New York Mercantile Exchange. Gasoline trading on the NYMEX on Tuesday was halted briefly after the contract gained the maximum allowed.

Oil prices are now more than double the levels reached in 2003.

Hurricane Katrina killed at least 50 people, shut nearly all of the Gulf of Mexico's oil production and 88 percent of natural gas output in the Gulf of Mexico -- about a quarter of the nation's oil output -- and closed down nine refineries along the coast. A total of 735 oil and natural-gas rigs and platforms remained evacuated, according to the federal Minerals Management Service.

Two Louisiana tanker terminals badly affected by the storm -- Port Fourchon and the Louisiana Offshore Oil Port -- together handle more than 20 percent of all the crude oil imported into the United States.

A U.S. Senator who flew over southeastern Louisiana on Tuesday said three of those oil refineries in Louisiana were "under water" due to flooding caused by Hurricane Katrina.

They included Murphy Oil's 120,000 barrels-per-day (bpd) refinery in Meraux, Exxon Mobil's joint venture 190,000 bpd refinery in Chalmette and Exxon's 247,000 bpd plant in Belle Chasse.

Several drilling companies, including Ensco, Transocean, and Noble, reported rigs adrift after the storm.

Energy analysts said oil prices could soar as high as 80 dollara barrel and drivers in the US could soon be paying 3 dollars a gallon for gasoline if damage reports from oil companies bear bad news.

"It's not out of the question that 80 dollars could be the next barrier if there's long-term damage," said Gerard Burg, minerals and energy economist at National Australia Bank.

The U.S. department of energy said it was considering an oil industry request to open up its Strategic Petroleum Reserve after Hurricane Katrina battered crude production sites in the country'ssouth.

OPEC's biggest crude oil producer, Saudi Arabia, pledged an extra 1.5 million bpd of oil to the international market if needed.

The Paris-based International Energy Agency said on Tuesday it could release crude or fuel from its emergency reserves if the impact of Katrina causes a severe crunch.