Gas Price Moves Up on Tight Supply
Energy prices moved higher in futures markets and at the gas pump Monday, as traders focused on new damage reports from refiners and oil producers, which were still assessing the fallout from Hurricane Rita.
The across-the-board increases in New York energy markets caught some analysts by surprise because the hurricane’s damage was less severe than feared and because futures prices had fallen during Sunday’s post-Rita electronic trading. Although Gulf of Mexico oil and natural gas production, hobbled for more than a month by Hurricane Katrina, remained largely shut down Monday, there was less demand for crude because about a quarter of the nation’s ability to refine oil also was out of commission, according to federal reports.
“Oil should not be up, and the fact that it is is another sign that we’re living in a world that is drastically supply constrained,” said Stephen Leeb of Leeb Capital Management. “There’s just no room for error.”
On Monday, the cost of oil jumped $1.63 on the New York Mercantile Exchange to close at $65.82 a barrel for November delivery of light, sweet crude. Gasoline futures rose 4 cents to $2.129 a gallon, while heating oil increased 11 cents to $2.059 per gallon and natural gas shot up 12 cents to $12.44 per million British thermal units.
The news was not much better for consumers, as the nationwide average retail price for gasoline rose 1.7 cents over the last week to $2.803 on Monday for a gallon of self-serve regular, according to the federal government’s weekly survey. California’s statewide average dipped less than a penny over the last seven days to $2.947 a gallon -- a price that’s more than 85 cents above year-ago levels.
Analysts say that Rita’s rampage could push pump prices back above $3 a gallon in some parts of the country because several refineries hit by the hurricane are still without power and need weeks of repairs before they can resume fuel production. Still, wholesale and retail energy prices were expected to stay below the record levels reached in Katrina’s wake.
Although Rita’s path shifted away from Houston’s concentrated cluster of refineries, “this is [still] a pretty significant blow to the refining industry,” said Tom Kloza of the Oil Price Information Service. “The industry’s going to limp along for a while, and I think everybody’s going to have to understand that.”
Oil companies are still inspecting their plants, and it could be several more days before there is a clear picture of when production can return to normal rates.
The seven refineries located in Lake Charles, La., and the Texas cities of Beaumont and Port Arthur appear to be the ones hardest hit by the water and wind that accompanied Rita. Together, they account for about 10% of the nation’s capacity to process crude oil.
Valero Energy Corp. on Monday said it found “extensive” additional damage at its 250,000-barrel-per-day Port Arthur refinery, but that it expected to be operating in two to four weeks. The urgency was evident outside the plant’s gates, as a steady stream of pickups, repair vehicles, trucks with bathtub-sized containers of fuel and trailers loaded with portable toilets poured through the entrance.
Among the parade of arrivals: officials from the Port Arthur Drainage Department, hazardous materials experts, telephone technicians, carpenters with a truck bed full of lumber, a crew from Cooling Towers of Texas and a crane operator carrying a water pump valve the size of a Mini Cooper automobile.
An idled Valero employee said he was told the plant would be down for a month. “Everything is on hold,” said the man, who didn’t want to be identified. “I’m just waiting to hear what’s next. They are doing all they can.”
French oil giant Total said that its 240,000 barrel-per-day refinery in Port Arthur would be closed for an “extended period of time,” and that it wouldn’t be making fuel deliveries to its normal customers. The company didn’t say when the plant would be back on line.
Other refineries in the region owned by Citgo, ConocoPhillips, Calcasieu Refining Co. and Shell Oil Co.’s Motiva joint venture all sustained varying degrees of damage, and it was unclear when they would restart.
The nine refineries in the Houston-Texas City area were working through power outages, minor repairs and staffing issues Monday, but most were expected to resume operations within the next few days.
About 5% of the nation’s fuel-making capacity has been out of commission since the end of August because of destruction caused by Hurricane Katrina.
Mike Fitzpatrick, senior vice president of energy risk management at Fimat USA Inc., said gasoline futures went up Monday because of “some significant refinery outages that might take weeks or months to repair.”
Reflecting increasing concern over the growing gap between refining capacity and demand for gasoline, diesel and other fuels, President Bush said Monday that the country might need to streamline environmental and other regulations to encourage oil companies to expand or build refineries.
Offshore, meanwhile, oil companies were discovering platforms torn from their moorings or tracking down rigs that were carried off altogether. On Monday, all of the oil production from the Gulf of Mexico remained closed down, and about 78% of the region’s normal production of natural gas was off line, according to the federal Minerals Management Service.
Some say the lost oil production is less of an immediate concern because the federal government has pledged to lend oil from the Strategic Petroleum Reserve. In addition, the need for crude has dropped markedly because so many Gulf Coast refineries aren’t running.
“As worried as I am about energy supplies ... I’m very surprised the [oil] market was as strong as it was [Monday],” said Leeb, author of “The Oil Factor,” a book that predicts a turbulent era of skyrocketing oil prices. But, he added, “This is a horribly tight market.... Maybe even I’m not worried enough.”
Pae reported from Port Arthur and Douglass from Los Angeles.
