Energy Prices Fall on Refinery Check

Futures prices for oil, gasoline and heating oil fell Sunday in an extended trading session in New York after preliminary inspections showed less-than-expected damage to refineries in Hurricane Rita’s path.

Nonetheless, oil experts warned that Rita’s winds packed enough punch to cripple a handful of refineries for a few weeks -- and that means retail gasoline prices could rise over the next month in some parts of the country before descending again.

“I think we kind of dodged one of those rocket-propelled grenades, but we took a couple of bullets” in the refining industry, said Tom Kloza, oil analyst and editorial director at the Oil Price Information Service. “This means supply is going to be touch-and-go until about Columbus Day, and generally, we’ll see higher [pump] prices.”

Consumers in the Southeast and Midwest are the most vulnerable to price hikes, Kloza said. He predicted pump prices there could jump back to $3 or so “until supply gets into balance.”

On Sunday, though, traders expressed their relief that Rita did not cause more destruction to the coastal refineries that together account for more than 25% of the nation’s capacity to turn crude oil into fuel.

Rita, which at one point had winds topping 175 miles per hour, lost steam and took a more northeasterly path than originally projected, hitting land early Saturday morning near Port Arthur, Texas, and Lake Charles, La. Houston, home to the largest cluster of fuel-making plants, took only a glancing blow.

The cost of crude oil, gasoline and other petroleum products fell immediately when the New York Mercantile Exchange opened electronic trading early Sunday to reduce the expected volatility in prices after Rita’s passage.

In evening trading, the futures price had fallen $1.14 to $63.05 for November delivery of a barrel of benchmark light sweet crude. Regular gasoline was trading down 10.4 cents to $1.98 a gallon, while heating oil had dipped 5.5 cents to $1.89 a gallon.

“What you’re seeing is the perception in the market that supply is going to come back much faster than anticipated,” said Andrew Lipow, president of Houston-based oil consulting company Lipow Oil Associates.

“The supply situation is still very tight [for gasoline], and it’s going to continue to be tight for another week or two, just because we had these outages,” Lipow said. But he added that gasoline futures on the Nymex were “going to get back to the pre-Katrina and pre-Rita prices of $1.79 or so, and possibly less.”

Oil companies, meanwhile, moved quickly to resupply gasoline stations in Texas and Louisiana and began restarting terminals and pipelines. They continued to check equipment both on- and offshore.

On Sunday, a Coast Guard official described the condition of oil and natural gas platforms in the Gulf of Mexico as “good” after completing a cursory survey from the air. All offshore oil production in the gulf was still halted as of Sunday, and about 80% of the region’s natural gas production was shut down, according to the federal Minerals Management Service.

In the hardest-hit areas of Lake Charles and Port Arthur and Beaumont, Texas, power was still out Sunday. Plants owned by ConocoPhillips and Citgo Petroleum Corp. sustained wind damage, and it was unclear when they would be back up.

In Port Arthur, refineries owned by Valero Energy Corp., Shell Oil Co.’s Motiva venture, and French-based Total suffered damage from Rita’s high winds and water. Valero said it would take two to four weeks to complete repairs and restart its refinery there.

Exxon Mobil Corp. said it believed that its refinery in Beaumont did not sustain significant damage. The company’s Baytown, Texas, plant -- the nation’s largest refinery -- had some damage, but it was beginning the start-up process, according to an Exxon statement.

BP reported Sunday that initial inspections of its Texas City, Texas, refinery found “no significant flooding and no obvious damage to process units.” Additional oil company reports are expected in the coming days.

On Sunday, the retail price of gasoline ticked up slightly, with the nationwide average rising 1.8 cents to $2.778 for a gallon of self-serve regular, according to AAA’s daily survey. California’s statewide average was $2.978 a gallon, unchanged from Saturday.

*

Bloomberg News was used in compiling this report.