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Gasoline, Crude Oil Surge on Signs U.S. Supplies Will Plunge

Gasoline, Crude Oil Surge on Signs U.S. Supplies Will Plunge

Sept. 28 (Bloomberg) -- Gasoline and crude oil surged on speculation that inventories will decline after Hurricane Rita shut refineries and offshore platforms. Natural gas soared 9.9 percent to a record on concern another storm will strike.

Eleven refineries along the Gulf of Mexico are closed because of Rita and Katrina, which struck last month. Offshore oil output in the Gulf remains shut. Prices extended gains after the Energy Department reported that gasoline supplies rose 4.4 million barrels to 199.8 million in the week ended Sept. 23. Crude-oil stockpiles fell more than expected, the report showed.

``There's good reason to be worried because so much refining capacity is off the market right now,'' said Tom Bentz, an oil broker with BNP Paribas Commodity Futures Inc. in New York. ``Nothing appears to be improving at the refineries and Gulf oil output is down 100 percent for nearly a week.''

Gasoline for October delivery jumped 17.29 cents, or 8 percent, to close at $2.3393 a gallon on the New York Mercantile Exchange, the highest since Sept. 1. The contract reached $2.35, the highest intraday price since Sept. 2. Prices touched $2.92 a gallon on Aug. 31, the highest since trading began in 1984. Futures are 72 percent higher than a year ago.

Crude oil for November delivery rose $1.28, or 2 percent, to $66.35 a barrel in New York. Futures have declined 6.4 percent since touching a record $70.85 a barrel on Aug. 30, the day after Katrina made landfall. Prices are 33 percent higher than a year ago.

A 2.25 million barrel decline in gasoline inventories was expected, according to the median of forecasts by 14 analysts. Demand rose by 0.2 percent as traffic crawled out of cities that were evacuated along the Gulf.

Natural Gas

Natural gas surged to a record on concern that tropical weather may cut production that has been crippled by two hurricanes in the last month. The U.S. National Hurricane Center said today that a ``vigorous'' tropical system in the Caribbean Sea was strengthening. So-called tropical waves can mark the beginnings of a hurricane.

Natural gas for October delivery rose $1.251, or 9.9 percent, to $13.907 per million British thermal units, the highest close since trading began in 1990. Futures reached $14.80, an intraday record. Prices have more than doubled in the past year.

Gas and oil prices often move in tandem because as many as 10 percent of U.S. factories and power plants can switch between burning oil and gas depending on cost.

Gulf Oil Production

U.S. crude-oil output in the Gulf has been halted for five days, according to the Minerals Management Service, which manages offshore resources. The region usually produces 1.5 million barrels a day. Natural gas production in the region is down 80 percent.

In London, the November Brent crude-oil futures contract rose 96 cents, or 1.5 percent, to $63.93 a barrel on the International Petroleum Exchange. Prices touched $68.89 on Aug. 30, the highest since trading began in 1988.

``We will have to wait till next week to get an idea of what the effects of Rita were,'' said Jason Schenker, an economist at Wachovia Corp. in Charlotte. ``This week's report doesn't reflect the 100 percent of offshore production that's been down.''

Oil Inventories

Crude oil supplies fell 2.4 million barrels to 305.7 million, the report showed. It was the fifth straight fall in stockpiles. Analysts expected a 1.75 million barrel decline, the Bloomberg survey showed.

``The combination of increased imports, lower-than-expected demand and relaxed pollution requirements allowed gasoline stocks to build,'' said Phil Flynn, vice president of risk management at Alaron Trading Corp. in Chicago. ``The suspension of the rules by the EPA probably allowed some refiners to squeeze a little more gasoline out.''

The U.S. Environmental Protection Agency waived federal clean-air fuel standards for 24 states through Oct. 5 because of Hurricane Katrina, which struck the Gulf last month. It allows refiners, importers, distributors and retailers to sell gasoline that meets lower emission standards.

Regular-grade gasoline, averaged nationwide, fell 0.2 cent to $2.811 a gallon at the pump, according to data released today by the AAA, the nation's largest motoring organization. Prices have declined 8 percent since touching a record $3.057 on Sept. 2. Pump prices are 47 percent higher than a year ago.

Gasoline Imports Jump

Gasoline imports rose 29 percent to an average 1.2 million barrels a day last week, the report showed.

``Imports definitely helped but aren't going to be enough in coming weeks,'' said John Kilduff, vice president of risk management at Fimat USA in New York. ``There will be supply problems with all of these refineries down.''

Refineries operated at 86.7 percent of capacity last week, down 4.5 percent from the week before and the lowest since Sept. 24, 2004, according to the department. Analysts expected a 7 percentage point decline.

``There's still major concern about refining capacity and the ability of these refiners to get those refineries up and running,'' said Ed Silliere, a trader on the floor of the New York Mercantile Exchange with Energy Merchant Brokerage, Inc.

Seven refineries in Port Arthur, Texas, Beaumont, Texas, and Lake Charles, Louisiana, close to where Rita made landfall on Sept. 24, are shut. Four plants that were damaged last month by Katrina are also shut.

Seven of nine refineries in the Houston area, to the west of Beaumont, have resumed operating after being spared major damage.

December Gasoline Cheaper

Futures prices reflect sentiment that refineries will reopen in coming weeks. Near-term gasoline contracts are more expensive than those for delivery in future months. Gasoline for December delivery is 30 cents cheaper than the October contract.

``My concern is that the focus on gasoline is at the expense of distillate,'' Flynn said. ``When winter comes along we may find that heating oil stocks are insufficient.''

Supplies of distillate fuel, a category that includes heating oil and diesel, fell 573,000 barrels to 133.6 million.

Heating oil for October delivery rose 7.25 cents, or 3.5 percent, to $2.1411 a gallon, the highest close since Sept. 1. Futures touched $2.16, the highest intraday price since Sept. 2. Heating oil is 55 percent higher than a year ago.

To contact the reporter on this story:
Mark Shenk in New York at [e-mail].


LINK: http://quote.bloomberg.com/apps/news?pid=10000103&sid=alOJoz3HoV2o&refer=news_index