/ 26 August 2005

Oil prices slip after record-breaking session

Oil prices slipped on Friday, a day after its record-setting session, as Hurricane Katrina spared refineries in the Gulf of Mexico and made landfall on Florida’s coast, easing fears of supply disruptions for the time being.

Midmorning in Singapore, light, sweet crude for front-month October delivery on the New York Mercantile Exchange, fell 36 cents to $67,13 a barrel in Asian electronic trading. The contract on Thursday ended at a record settlement of $67,49, the highest closing price since oil began trading on Nymex in 1983, after earlier hitting $68.

Gasoline fell marginally to $1,9550 a gallon while heating oil inched down slightly to $1,8600 in Asia on Friday.

Fears, which some analysts said were overblown, that Katrina would disrupt oil and natural gas production in the region was the main catalyst pushing October Nymex crude futures to new highs in the past two days.

Reports that British Petroleum and Royal Dutch Shell evacuated non-essential staff from some of their Gulf of Mexico rigs and platforms as a precautionary measure also helped fuel concerns about the possible impact of the hurricane.

But early on Friday in Asia, news that Hurricane Katrina made landfall without hurting Gulf facilities calmed the market. However, such good news could be short-lived, as the world’s limited excess capacity to offset any unscheduled outages continues to be at the pricing forefront.

The United States National Hurricane Centre said after crossing the peninsula, the storm could turn to the north over the Gulf of Mexico and threaten the Panhandle early next week — a path that would keep it away from the heart of the oil- and gas-producing regions of the Gulf.

”It looks quite unlikely that Katrina would affect the Gulf of Mexico facilities, and that’s what’s bringing the price down now as people start to take profits,” said chief commodities strategist Tetsu Emori of Mitsui Bussan Futures in Tokyo.

Katrina is the 11th named storm of the Atlantic hurricane season, which began on June 1. The season ends on November 30.

Traders are concerned about any potential disruption, however small it may be, because it could lead to a short-term hiccup due to thinness in refinery capacity. Last year’s Hurricane Ivan damaged Gulf facilities and forced a severe dip in output for several months.

Analysts say this fear is likely to stay and lend support to prices, which are at least 50% higher than a year ago. On an inflation-adjusted basis, oil prices would need to hit about $90 a barrel to match the highs of 25 years ago.

”The upward trend seems sustainable. Speculators are looking out for any news to buy on,” said Ken Hasegawa of Tokyo-based brokerage Himawari CX, forecasting next week’s market activity.

Meanwhile, the market seemed to disregard fresh evidence of a strengthening US economy released on Thursday showing the number of people receiving unemployment benefits reached a four-year low last week. Positive economic data is usually a driver of bullish sentiment.

The US Labour Department said the number of laid-off workers receiving jobless benefits averaged 2,58-million over the four weeks ending last week, the lowest four-week average since March 2001.

In other market-related news, Ecuadorean protesters agreed late on Thursday to end a 12-day strike that had caused important losses due to the force majeure declared last week on oil exports.

Nearly all of the Andean nation’s exports, or about 290 000 barrels a day, go to the US, the world’s largest energy consumer. — Sapa-AP