Oil falls as U.S. recovers
By Richard Valdmanis
Reuters
Tuesday, September 6, 2005; 4:06 PM
http://www.washingtonpost.com/wp-dyn/content/article/2005/09/06/AR2005090600253_2.html
NEW YORK (Reuters) - Oil prices fell 2.4 percent on Tuesday as the
U.S. energy industry showed signs of recovery in the wake of
Hurricane Katrina and industrialized countries prepared to tap
emergency supplies to avert a crunch.
U.S. crude <CLc1> settled down $1.61 to $65.96 a barrel -- well below
last week's peak $70.85 -- while London Brent <LCOc1> was off 18
cents at $64.67.
Hurricane Katrina slammed into the Gulf Coast early last week,
shutting down nearly all U.S. offshore crude oil production and
paralyzing more than 10 percent of refining capacity in the world's
biggest fuel consumer.
But the industry's desperate push to recover has begun to pay
dividends, as nearly half of the refineries fully or partially closed
by the storm returned to service and offshore operators made strides
to restore production.
"We are starting to see signs of recovery after Hurricane Katrina ...
It looks like the worst is over," said Phil Flynn, analyst at Alaron Trading.
Dealers said additional supply from the world's emergency stockpiles
would also keep prices under pressure.
The United States began an auction on Tuesday for crude from national
reserves for refiners struggling for feedstock after Katrina shut
down most Gulf of Mexico production and closed major pipelines.
This comes as part of the International Energy Agency's total release
of 2 million barrels per day (bpd) over the next 30 days, the first
time the IEA has tapped its members' 1.5 billion barrel government
stocks since 1991.
It is still not clear how much of the IEA release will comprise oil
products such as gasoline, coming as U.S. retail price increases
worry motorists and businesses.
"The release of strategic reserves contains a very large component of
unneeded crude oil, and does little to directly impact on the actual
supply gap of U.S. oil products," said a report by Barclays Capital.
"We are now putting the expected cumulative loss of U.S. gasoline
output at about 60 million barrels."
Adding to pressure, State Saudi Aramco set its monthly crude oil
selling prices (OSP) to the United States, Europe and Asia on Monday,
making deep cuts to the price of its heaviest grades, which are
harder to refine
The new pricing formula is a reflection of the changing circumstances
in the United States as a result of Katrina. The goal is to satisfy
customers and to make oil available on the market," the Gulf-based
delegate told Reuters on Tuesday.
U.S. RECOVERY
Crews have been working around the clock to assess damage, make
repairs and restore power at eight refineries situated along the Gulf
of Mexico that were shut by the storm.
Two of the largest, a 235,000 barrel-per-day plant owned by Motiva
Enterprises in Convent, Louisiana, and a 245,000 barrel-per-day plant
owned by Marathon Oil Corp. <MRO.N> in Garyville, Louisiana, have now
been restarted.
Several others that were forced to curtail production -- stretching
as far north as Illinois -- have also returned to service.
Meanwhile, production in the Gulf of Mexico has showed some signs of
recovery, with only 58 percent of the region's crude output shut
Tuesday compared with 70 percent Monday, according to the Minerals
Management Service.
Since August 26, the effects of Katrina have cut 12.75 million
barrels of crude production -- the equivalent of 15 percent of the
world's daily oil output.
Speculation that the storm could dent consumer confidence and trim
U.S. economic growth also weighed on markets.
While the improvements in the U.S. energy industry took some edge of
the oil price, losses were limited by concerns that a full recovery
could be a long way off.
A senior U.S. Interior Department official said on Tuesday it could
take months before U.S. oil and natural gas production in the Gulf of
Mexico returns to normal.
"It will take some time, weeks or even months before we are back up
to 100 percent," Rebecca Watson, Assistant Secretary at the Interior
Department, said in testimony prepared for a Senate Energy Committee hearing.
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