U.S. crude oil futures hit an all-time nominal high of $67.40 per barrel on the NYMEX on Wednesday.  --  Reuters reported a variety of factors, with an emphasis on an unexpectedly large decline in the U.S. gasoline supply and Tropical Storm Katrina growing stronger over the Bahamas.[1]  --  Underlying various proximate causes was an underlying structural problem, AP reported:  "With global demand averaging some 84 million barrels a day this year, the world has scant excess production capacity -- about 1.5 million barrels -- to offset any lost output.  --  'A lot of this is "just in case" buying,'" an oil broker said.[2]  --  But Mark Shenk of Bloomberg News tried to keep it all in perspective, concluding with this curious observation from Ben Dell, an exploration and production analyst for Sanford C. Bernstein in New York:  "A barrel of Starbucks latte would cost you $1500, compared to a barrel of crude, even at $66 a barrel.  What's interesting about that is not so much that coffee costs more than oil, but the fact that you could drive to Boston and back from New York and if you had three or four people in the car and they decided not to have a coffee it would offset the entire gasoline increase from $2 gasoline to $3 gasoline."[3]  --  Huh?  We'd like to see the calculations on that one....



Top News


August 24, 2005

Original source: Reuters

NEW YORK -- Oil prices surged more than 2 percent to set a record on Wednesday, after an unexpectedly large drop in U.S. gasoline stocks added to worries that a gathering storm in the Atlantic could damage U.S. oil production platforms.

News Iran's parliament had thrown out the new president's choice for oil minister added to the market's uncertainty and drew a big question mark over oil policy in OPEC's second-biggest producer.

U.S. crude settled at $67.32 a barrel, up $1.61, shortly after hitting $67.40, the highest level in 22 years of oil futures trade on the New York Mercantile Exchange. Oil hit its previous record, $67.10, earlier this month. London Brent settled $1.36 higher at $66.01 on the International Petroleum Exchange.

U.S. data released Wednesday morning showed gasoline inventories in the world's biggest energy consumer tumbled 3.2 million barrels last week, or nearly 2 percent, with two weeks of the peak U.S. driving season to go.

"The gasoline draw is a bullish number, without doubt. The decline was much bigger than the 1.1 million barrels draw the Street was anticipating," said Jim Ritterbusch, analyst at Ritterbusch and Associates.

The market was also watching Tropical Storm Katrina gather strength over the Bahamas and take aim at Florida's southern tip and the oil-producing Gulf of Mexico, which accounts for up to a quarter of U.S. oil output.

"The peak period for hurricanes is usually from August to September, so the oil market is concerned about the risk of weather-related production losses over the coming weeks," said Kevin Norrish of Barclays Capital.

U.S. crude stocks rose 1.8 million barrels last week, contrary to analyst forecasts for a fall. Heating oil supplies built, as anticipated, ahead of the winter.

$50 OIL IN 2006

Assurances by top exporter Saudi Arabia that it would pump as much oil as its customers need failed to take the sting out of a rally that has lifted oil toward the inflation-adjusted $82 a barrel of 1980, the year after the Iranian revolution.

And there is no sign of a let-up next year. Analysts polled by Reuters predicted for the first time on Wednesday that prices would breach $50 a barrel in 2006.

The perceived vulnerability of supply lines is a major factor supporting prices.

Crude oil exports from Iraq's southern Basra terminal resumed late on Tuesday, after a power cut earlier in the day.

In Ecuador, which mostly supplies crude to California, output was still down to around 80 percent of its 530,000-bpd level after attacks on oil infrastructure last week.

Traders were also watching for any disruption in Nigeria, the world's eighth-largest crude exporter, after the state pricing agency instructed the national oil company to recover costs on sales, implying consumer prices are set to rise dramatically. Previous fuel hikes have led to general strikes.

With some production in the U.K. North Sea and India already offline, dealers worry that the Organization of Petroleum Exporting Countries is pumping flat out and would strain to make up any unexpected outages.



Associated Press
August 24, 2005


Oil prices surged above $67 a barrel Wednesday on concerns about a storm that could hit production sites in the Gulf of Mexico and a U.S. government report that showed a decline in the nation's gasoline supply.

Natural gas futures also rallied on the storm fears -- even though forecasters anticipate a weak hurricane -- as traders recalled the months-long disruption to oil and gas production in the region following last year's Hurricane Ivan.

"The fear of a replication of that is going to keep the market on its toes and we could easily test $70 a barrel," said Marshall Steeves, an analyst at Refco Group Inc. in New York.

Crude oil for October delivery rose $1.69 to $67.40 a barrel in afternoon trade on the New York Mercantile Exchange. That tops the front-month contract's previous intraday high of $67.10, set Aug. 12.

On an inflation-adjusted basis, oil prices would need to hit about $90 a barrel to match the highs of 25 years ago.

September natural gas futures climbed 16.7 cents to $9.850 per 1,000 cubic feet. The contract had surged as high as $10.128 per 1,000 cubic feet in overnight electronic trade.

Brokers said supplies of oil, natural gas, gasoline, and other products are adequate for this time of year, explaining that the seemingly unending rally on energy markets is more a reflection of fears about unexpected supply disruptions at a time when demand is strong.

With global demand averaging some 84 million barrels a day this year, the world has scant excess production capacity -- about 1.5 million barrels -- to offset any lost output.

"A lot of this is 'just in case' buying," said oil broker Mike Fitzpatrick at Fimat USA in New York.

The amount of natural gas in storage in the U.S. stands at 2.52 trillion cubic feet, according to the Energy Department. That is about 0.2 percent below year ago levels.

"I don't see a big problem," Fitzpatrick said.

In its weekly petroleum supply report, the Energy Department said domestic inventories of gasoline fell by 3.2 million barrels last week to 194.9 million barrels, or 7 percent below year ago levels.

U.S. supplies of crude oil grew by 1.8 million barrels to 322.9 million barrels, or 13 percent above year ago levels, the agency said. The supply of distillate fuel, which includes heating oil and diesel, increased by 1.4 million barrels to 132.5 million barrels, or 4 percent above last year's level.

The mixed picture did little to calm nerves on energy markets.

"The inventories have built a little bit, but that doesn't mean an outage somewhere doesn't cause price spikes," said oil broker Tom Bentz at BNP Paribas Commodity Futures in New York.

On London's International Petroleum Exchange, October Brent crude futures rose 18 cents to $64.83 a barrel.

Nymex gasoline futures jumped 6.2 cents to $1.92 per gallon, while heating oil futures gained 4.06 cents to $1.86 per gallon.

Retail gasoline prices are averaging $2.61 a gallon nationwide, an all-time high and 73 cents higher than last year, even as demand continues to rise, according to government statistics.

But with the summer driving season drawing to an end, market focus is expected to shift to heating oil and natural gas as demand for this product usually peaks in the winter.

Stoking bullish sentiment on Wednesday was Tropical Storm Katrina, which formed in the Bahamas and could reach hurricane strength before hitting the coast of Florida later this week. The National Hurricane Center said the storm is expected to cross the state and head into the Gulf of Mexico, dropping a foot or more of rain.

While jitters about Katrina's strength and path were the predominant force on energy markets on Wednesday, some analysts said the storm worries may be overblown.

"As with most storms, we think the fear factor is exceeding the likely impact on production here," said Timothy Evans, senior energy analyst at IFR Energy Services in New York.

The market has also been rattled lately by production outages in Ecuador, due to worker unrest, and in Iraq, where insurgents shut down most of the country's electricity grid on Monday.

"The markets are focused on event risk, and the fact that any small disruption in production, due to the thinness of refinery capacity, could lead to a short-term hiccup," said Joe Duarte, a Dallas-based independent energy analyst. "The market is clearly in a different zone now, being driven by momentum more than fundamentals."

Iraqi exports have since begun returning to normal, and the situation in Ecuador also has stabilized.

--Associated Press Writers George Jahn in Vienna, Austria, and En-Lai Yeoh contributed to this report from Singapore.


Top Worldwide

By Mark Shenk

Bloomberg News
August 24, 2005


Crude oil rose to a record $67.40 a barrel in New York and natural gas reached $10 for the first time in 30 months on concern that a storm heading for Florida may threaten production platforms in the Gulf of Mexico.

Tropical Storm Katrina, the 11th named storm of the year, is forecast to reach hurricane strength before crossing Florida August 26 and moving into the Gulf, the Miami-based National Hurricane Center said. The Gulf of Mexico accounts for 24 percent of U.S. gas production and 30 percent of oil output.

"Katrina is worrisome because of where it's headed," said Adam Sieminski, chief energy economist at Deutsche Bank AG in New York. "If it still has any oomph when it gets to the Gulf, they will start shutting platforms."

Crude oil for October delivery rose $1.64, or 2.5 percent, to $67.35 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. The previous record of $67.10 was touched on Aug. 12. Prices are up 49 percent from a year ago.

Natural gas for September delivery rose 29.7 cents, or 3.1 percent, to $9.98 per million British thermal units in New York. Futures touched $10.128, the highest since February 2003 when supplies plunged because of cold weather in the Northeast and Midwest U.S. Gas prices have surged since touching $1.83 in September 2001 and are 87 percent higher than a year ago.


"We've got a tropical storm coming into the Gulf, which has got people worried, but we've been seeing natural gas prices rise over the past six months and actually over the last three or four years," said Ben Dell, an exploration and production analyst for Sanford C. Bernstein in New York. "This is driven by the fact that new supplies of natural gas in the U.S. are becoming harder and harder to come by."

Hot weather pushed U.S. cooling demand to 14 percent above normal last week, according to the National Oceanic and Atmospheric Administration.

"When crude oil goes higher there's upward pressure on natural gas," said Jason Schenker, an economist at Wachovia Corp. in Charlotte. "We could easily see $11-plus natural gas this winter if the weather is cool and injections don't increase."

Oil followed natural gas higher because some factories and power plants can switch between petroleum-based fuels and gas depending on cost.

In London, the October Brent crude-oil futures contract rose $1.33, or 2.1 percent, to $65.98 a barrel on the International Petroleum Exchange. Brent touched $66.85 a barrel on Aug. 15, the highest for a contract closest to expiration since trading began in 1988.


Surging crude oil has hurt the economies in poor countries that subsidize fuel prices. Indonesia's stocks and bonds fell after the nation's currency plunged to a 3 1/2-year low on speculation rising oil prices will force the government and companies to buy more dollars.

Indonesia is the only member of the Organization of Petroleum Exporting Countries that is a net importer of oil. Reducing those subsidies may trigger unrest in the country, which has had four presidents since former dictator Suharto resigned amid public protests in 1998.

"If governments are no longer able to afford to subsidize fuel prices, demand will be sapped," Schenker said. "Asian demand could fall once consumers feel the high prices."


Gasoline supplies plunged 3.2 million barrels to 194.9 million barrels last week, the eighth-straight decline, the Energy Department said. Stockpiles are at the lowest since November 2003. A fall of 1.5 million barrels was expected, according to the median of responses in a Bloomberg survey.

U.S. consumption of the fuel jumps between late-May's Memorial Day holiday and the Labor Day holiday in early September, when motorists take to the highways for summer vacations.

Crude-oil supplies jumped 1.9 million barrels, the fourth-straight increase, to 322.9 million in the week ended Aug. 18, according to the report. Stockpiles are more than 10 percent higher than a year ago.

Gasoline for September delivery rose 6.7 cents, or 3.6 percent, to $1.925 a gallon in New York. Futures reached a record $2.029 on Aug. 17. Heating oil for September delivery rose 4.56 cents, or 2.5 percent, to $1.865 a gallon.

"We certainly didn't see higher gas prices coming as quickly as they came and as precipitously as they came," William Clay Ford Jr., chief executive of Ford Motor Co., said to reporters in Detroit yesterday.


Regular-grade gasoline, averaged nationwide, fell 0.4 cent to $2.611 a gallon yesterday, according to data released today by the AAA, formerly the American Automobile Association. Prices averaged a record $2.614 a gallon on Aug. 19. Pump prices are 39 percent higher than a year ago.

"A barrel of Starbucks latte would cost you $1500, compared to a barrel of crude, even at $66 a barrel," Dell said. "What's interesting about that is not so much that coffee costs more than oil, but the fact that you could drive to Boston and back from New York and if you had three or four people in the car and they decided not to have a coffee it would offset the entire gasoline increase from $2 gasoline to $3 gasoline."

To contact the reporter on this story:
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