Crude oil futures drop, supply concerns persist

Power restored to one large Texas refinery, Bush administration says it would tap emergency supply of heating oil for Northeast

Brad Foss

Associated Press Business Writer

Crude oil futures retreated Oct. 3 after power was restored to a large refinery in Texas and the Bush administration said it was, in principle, prepared to tap an emergency supply of heating oil in the Northeast.

But analysts said they did not expect fuel prices to fall sharply anytime soon because of the persistent supply constraints caused by back-to-back hurricanes.

In the aftermath of Katrina and Rita, a dozen refineries along the Gulf Coast remain closed, crimping gasoline and heating-oil production, and oil and natural gas output is far below normal levels. Under the circumstances, brokers said the decline in energy futures on Monday should not be seen as the start of a significant downtrend and they warned it could be merely a pause in a broader uptrend.

“I think it’s more likely that this is probably a consolidation before the next move higher,” said broker Tom Bentz of BNP Paribas Commodity Futures.

Light sweet crude for November delivery on the New York Mercantile Exchange fell 77 cents to $65.47 per barrel. Also on Nymex, heating oil futures fell by 4.87 cents to $2.0809 per gallon and gasoline futures fell 3.46 cents to $2.0622 a gallon.

November Brent futures slipped 59 cents to $62.89 per barrel on London’s International Petroleum Exchange.

Power back in Beaumont

That still leaves seven other refineries in Texas out of service in the aftermath of Rita, and four off-line in Louisiana and Mississippi as a result of Rita. Others are in the process of restarting but, combined, the losses add up to almost 3 million barrels a day of capacity, placing considerable strain on motor fuel supplies.

The average retail price of gasoline is $2.94 a gallon nationwide, or about $1 per gallon higher than a year ago.

But with the home-heating season just around the corner, the market received an ounce of relief when Energy Secretary Samuel Bodman said the government was “prepared to do what is necessary with strategic reserves,” in response to a question about the Northeast emergency heating oil supply.

Prices need to attract fuel imports

“The longer term outlook is bullish for prices going into the fourth quarter, with heating oil demand now being in focus,” said Victor Shum, oil analyst at energy consultants Texas-headquartered Purvin & Gertz in Singapore.

The recovery of oil and natural gas output remains slow, with 98 percent of the Gulf of Mexico’s crude production still shut and 79 percent of natural gas production down, according to the federal Minerals Management Service.

The loss of natural gas output is particularly troublesome, analysts say, because there is no emergency stockpile.

Natural gas futures have risen about 18 percent since Katrina hit, and are about 74 percent higher than they were two months ago. Natural gas futures rose 10.9 cents to $14.03 per 1,000 cubic feet Oct. 3.

“(With) a lot of questions concerning productive infrastructure in the Gulf still unanswered, it is difficult to envision any scenario right now that has prices retreating too far,” said Mike Fitzpatrick of Fimat USA Inc. “Barring a miracle, don’t look for much relief until spring.”

Crude oil prices peaked at $70.85 briefly on Aug. 30, after Katrina made landfall. They remain about 30 percent higher than a year ago, when Hurricane Ivan disrupted oil production and refining in the Gulf.