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Crude Oil, Gasoline Tumble as U.S. Imports Surge, Demand Slips

Crude Oil, Gasoline Tumble as U.S. Imports Surge, Demand Slips

Oct. 6 (Bloomberg) -- Crude oil tumbled to a two-month low and gasoline slid for a sixth session as U.S. fuel imports surged and demand stagnated.

Crude oil for November delivery fell $1.43, or 2.3 percent, to $61.36 a barrel on the New York Mercantile Exchange, the lowest close since Aug. 3. Gasoline for November delivery plunged 6.73 cents, or 3.5 percent, to $1.8405 a gallon in New York, the lowest close since Sept. 16.

``We know that there are tremendous cargoes of both products and crude oil coming here,'' said Jim Steel, director of commodity research at Refco Inc. in New York. ``There's anecdotal evidence from gasoline stations that demand is sluggish.''

Imports of gasoline and other fuels jumped 26 percent to 4.5 million barrels last week, the highest since at least 1990, according to the Energy Department. The International Energy Agency has released emergency stockpiles to substitute for output lost when Hurricanes Katrina and Rita hit the U.S. Fuel demand is lower than a year earlier, the department said.

Crude oil has declined 13 percent since reaching a record $70.85 a barrel on Aug. 30, the day after Katrina made landfall along the Gulf of Mexico coast. Oil is 18 percent higher than a year ago. Gasoline futures reached a record $2.92 a gallon on Aug. 31. The motor fuel is 33 percent higher than a year ago.

Technical Tools

Gasoline futures have plunged 21 percent in the past six sessions, a period not exceeded since March 2003. Prices are approaching the 100-day moving average of $1.79 a gallon, a tool that so-called technical traders use to predict price movements.

``Yesterday, we passed the 30-day moving average and are fast approaching the 100-day moving average,'' said Jason Schenker, an economist at Wachovia Corp. in Charlotte. ``Earlier this year we crossed the 100-day moving average and prices bounced. If we get the technical breakthrough you will see retail prices fall.''

Regular-grade gasoline, averaged nationwide, fell 0.3 cent to $2.938 a gallon yesterday, according to data released today by the AAA, the nation's largest motoring organization. Prices have declined 3.9 percent since touching a record $3.057 on Sept. 2. Pump prices are 51 percent higher than a year ago.

``The disruption on the Gulf and the huge flow of imports through New York Harbor have changed the relationship between futures and retail prices,'' said Bill O'Grady, an analyst with A.G. Edwards & Sons in St. Louis. ``Retail prices are usually about 70 cents higher than futures. The big drop in futures is due to the arrivals in New York but there are still large areas where supply is short, which is supporting retail prices.''

End of Rally

The two-year rally in oil prices and stocks such as BP Plc is over for now as surging energy costs hurt demand, said Neil McMahon, an analyst at Sanford C. Bernstein Co. McMahon today cut his recommendation on shares of BP, Chevron Corp., ConocoPhillips and five other energy companies as part of a prediction that profits may have peaked.

``The energy sector has had a good run but the market is now overestimating demand growth,'' McMahon said. ``Every oil price cycle has ended because of demand destruction and we're seeing that now. We'll really get smacked in January, February and March as those heating bills start hitting.''

Heating oil for November delivery fell 6.41 cents, or 3.2 percent, to $1.9507 a gallon, the lowest close since Sept. 23. Heating oil is 37 percent higher than a year ago.

Retail heating oil in the U.S. averaged $2.69 a gallon, 47 percent higher than a year ago, the Energy Department said yesterday.

Natural Gas

Natural gas is more expensive than heating oil on a British thermal unit basis in New York based on wholesale prices. This is a reversal from the normal pattern. Natural gas is the most used heating fuel in the U.S.

Natural gas for November delivery fell 80.8 cents, or 5.7 percent, to close at $13.375 per million British thermal units. Futures touched $14.80 on Sept. 28, the highest since trading began in 1990. Prices are 90 percent higher than a year ago.

Colonial Pipeline Co. restored gasoline shipments to pre- hurricane levels and said shipments of diesel fuel, heating oil and jet fuel from Texas to the U.S. Northeast rose to 80 percent of normal. Resumption of electricity to pumping stations in Louisiana helped restore flow, Alpharetta, Georgia-based Colonial said in a statement. Colonial is the world's biggest network of petroleum-product pipelines.

Refinery Repairs

Chevron said its Pascagoula, Mississippi, refinery, which was shut prior to Katrina, will resume operating weeks before the company previously forecast. The plant may be fully operational by the end of the month, the company said. Last month the company said the refinery, which can process 325,000 barrels a day, would restore full output by mid-November.

The Pascagoula refinery and three facilities in Louisiana, which account for about 5.2 percent of U.S. oil-refining capacity, are closed because of damage done by Katrina. The four plants have a combined processing capacity of about 887,000 barrels of oil a day.

Electricity has been restored to seven idled refineries near the Texas-Louisiana border, which had been shut since Rita made landfall on Sept. 24. The closure of the plants idled more than 10 percent of U.S. refining capacity.

Production Rises

Oil production in the Gulf rose as crews repaired storm damage, a government report showed. Shut oil output from the Gulf region totaled 1.2 million barrels, or 80 percent of pre- hurricane levels, a U.S. Minerals Management Service report showed today. Output was down 1.3 million barrels yesterday. About 30 percent of the nation's oil output comes from platforms in the Gulf.

``There's no debate that higher energy prices have crimped demand for petroleum products a bit and are reducing economic growth,'' said Nariman Behravesh, chief economist at Global Insight in Lexington, Massachusetts. ``The only question is the degree of the effect.''

U.S. fuel consumption averaged 19.9 million barrels per day during the past four weeks, 2.9 percent less than a year earlier, according to the department.

``This was the fourth week in a row with weak demand,'' said Kyle Cooper, an analyst with Citigroup Inc. in Houston. ``There is more validity to the argument that demand is falling with each week that passes. Prices are still at a historically high level, which is hitting demand.''

`Demand Destruction'

The IEA said demand destruction may remove the need for added emergency fuel releases to ease shortages caused by the hurricanes.

``It depends on whether the demand destruction we've seen in the U.S. is a lasting one or not,'' Claude Mandil, the executive director of the agency, said in a telephone interview from Paris. ``We're monitoring the situation closely to see whether there is a need for an additional stock release or not.''

Mandil said the IEA will probably see through its decision on Sept. 2 to release as much as 60 million barrels of crude or oil products to make up for lost U.S. production. Mandil said about 80 percent of the release has been accounted for already and expects the full 60 million barrels will be used by the market.

European Central Bank President Jean-Claude Trichet said the bank is increasingly concerned about inflation and is prepared ``at any time'' to raise interest rates for the first time in five years. Inflation accelerated to 2.5 percent in September, the eighth month it was above the bank's 2 percent ceiling, after oil surged to a record.

Growth `Dampened'

Economic growth has been ``dampened in part by higher oil prices,'' Trichet said today at a press conference in Athens. Growth should ``gradually pick up from the second half of this year onwards. This outlook for economic activity remains subject to downward risks relating mainly to oil prices.''

In London, the November Brent crude-oil futures contract fell $1.75, or 2.9 percent, to $58.37 a barrel on the International Petroleum Exchange, the lowest close since July 27. Prices reached $68.89 on Aug. 30, the highest since trading began in 1988.

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


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