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U.S.

OIL, GASOLINE REBOUND ON CONCERN REFINERIES MAY BE SHUT LONGER
By Matthew Leising

Bloomberg News
September 26, 2005

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Crude oil and gasoline futures rebounded on speculation that refineries near the Texas-Louisiana border may be shut for longer than expected.

Valero Energy Corp., the nation's largest refiner, said its Port Arthur, Texas, plant has "extensive" electrical damage and might be closed for two to four weeks. Six others in Port Arthur and Beaumont, Texas, and Lake Charles, Louisiana, may stay shut because of lack of power and damage from winds or flooding. None of the operators said when output would resume.

"The fate of these seven refineries -- you don't know how long they'll be out for," said Andrew Lebow, an oil trader for Man Financial Inc. in New York.

Crude oil for November delivery closed up $1.63, or 2.5 percent, to $65.82 a barrel on the New York Mercantile Exchange. Prices earlier touched $62.65, the lowest since Sept. 12. Futures have fallen 7.1 percent since setting a record $70.85 on Aug. 30, the day after Hurricane Katrina made landfall. Prices are 33 percent higher than a year ago.

Gasoline for October delivery closed up 4.36 cents, or 2.1 percent, to $2.1292 a gallon on the Nymex. Prices reached $2.92 a gallon on Aug. 31, the highest since trading began in 1984. Futures are 58 percent higher than a year ago.

PATH OF RITA

Prices began rising after President George Bush said it was unknown how much damage was sustained to the refining areas directly hit by Rita. "We don't know yet about 1.7 million barrels a day that were located right in the path of Rita," Bush said in comments after a briefing at the U.S. Energy Department.

The seven refineries in the Port Arthur, Beaumont, and Lake Charles area have combined processing of 1.77 million barrels a day, or about 10 percent of U.S. capacity.

Energy Secretary Samuel Bodman "has got his people in contact with the energy companies to find out exactly what we have to deal with," Bush said.

At least 29 percent of U.S. crude-oil refining capacity was shut because of Hurricanes Rita and Katrina, according to data from the companies and the Energy Department. The refineries, which include six of the 10 largest in the U.S., have a combined oil-processing capacity of about 4.94 million barrels a day.

Oil production in the Gulf, which accounts for about 30 percent of U.S. output, was completely halted because of Rita and Katrina, the U.S. Minerals Management Service said yesterday.

Chevron Corp. said its Typhoon platform in the Gulf was "severely'' damaged after Rita. The platform, which accounts for 3 percent of the company's Gulf production, was severed from its mooring and is being secured, the San Ramon, California-based company said in a statement today.

OFFSHORE PRODUCTION

"The real issue is offshore production," said David Pursell, a partner at Pickering Energy Partners in Houston. Rita became a Category 5 hurricane on the five-tier Saffir-Simpson scale before coming ashore, with winds of more than 155 mph as it swept over oil and gas production facilities. Damage to oil production platforms such as Chevron's Typhoon shows how strong the winds and waves from Rita were, Pursell said.

Bush said the U.S. will provide oil from the nation's Strategic Petroleum Reserve, a move first made after Katrina crimped supplies. "There's been a disruption of supply and we want to be sure to do everything we can to help with supply," Bush said.

Texas is home to the biggest concentration of U.S. refineries, accounting for 26 percent of the nation's total capacity.

About 5 percent of U.S. refining capacity remains closed because of Katrina. Four plants are scheduled to resume output in November or December at the earliest. Katrina caused gasoline shortages in parts of the South and Midwest after refineries and pipelines were damaged or left without power, driving prices at the pump above $3 a gallon.

ADDITIONAL CAPACITY

"These storms showed us we need additional capacity, additional refining capacity for example, to meet the needs of the American people," Bush said.

The last refinery built in the U.S. was a Marathon Oil Corp. plant in Garyville, Louisiana, that opened in 1976.

Gasoline and other fuel pipelines operated by Colonial Pipeline Co. and Explorer Pipeline Co. closed because of Rita. Explorer, which normally ships 10 percent of the Midwest liquid fuel supply, is "up and running at reduced rates," said Tom Jensen, director of operations. The pipeline resumed operations from Texas to Tulsa today and expects to resume deliveries to St. Louis and Chicago tonight or early tomorrow, Jensen said.

COLONIAL PIPELINE

Colonial, the world's largest operator of petroleum-product pipelines, said yesterday it resumed operation at its pipelines originating in Houston and Pasadena, Texas, and would be running at 42 percent of capacity. It expected to increase that to 54 percent of capacity today and 72 percent by tomorrow, the Alpharetta, Georgia, company said in a release.

The Louisiana Offshore Oil Port, the biggest U.S. oil import terminal, expects to unload its first oil tanker in four days this afternoon, said spokeswoman Barb Hestermann. Its offshore unloading stopped Sept. 22 because of rough seas. Onshore deliveries of oil from its storage tanks to refineries resumed three days ago after a brief halt, she said.

PUMP PRICES RISE

At the pump, the average U.S. retail price yesterday rose 5.2 cents to $2.80 a gallon, according to the AAA motorists' group. It reached a record $3.057 on Sept. 2, the week Katrina hit. Gasoline futures, which serve as wholesale prices, rose 17 percent last week. That increase will translate into higher pump prices, Pursell said.

After Hurricanes Katrina and Rita, American consumers are facing sticker shock over gasoline prices, said James Cordier, president of Liberty Trading Group in Tampa. "The talk is truly conservation right now," he said. "The radio stations here -- you call in to win gasoline. That's how bad it is."

Exxon Mobil Corp., the world's largest publicly traded oil company, said with terminals and pipelines reopened, it has resumed delivering gasoline from its Baytown refinery. Initial assessments of the Beaumont refinery and chemical-plant operations don't show any significant damage, Exxon said.

Royal Dutch Shell Plc, Europe's second-biggest oil company, said it found "only minor damage" at its Deer Park refinery and chemical plant near Houston after Rita passed. Gasoline and diesel shipments may begin today, Shell said.

Brent crude for November settlement rose $1.49, or 2.4 percent, to $63.93 a barrel on London's International Petroleum Exchange. It reached a record $68.89 after Katrina hit last month.

The Nymex and London's International Petroleum Exchange offered weekend trading yesterday because of Rita. Both exchanges incorporated yesterday's trades as part of today's session.

--To contact the reporter on this story: Matthew Leising in New York at mleising@bloomberg.net.