Oil prices fell on Monday after industrialised nations agreed to release 60-million barrels of crude from their strategic stockpiles to help avert a severe fuel shortage in the United States.
The US refinery system is struggling to recover from Hurricane Katrina. Two storm-shuttered facilities have restarted and flows of crude oil have improved enough to allow refineries in the Gulf Coast and Midwest to ramp up production. But four damaged Gulf Coast refiners look likely to remain shut for weeks or even months, taking with them more than 5% of US capacity.
Still, the decision by industrialised nations to alleviate the hurricane-caused shortfall from their own stocks appeared to calm the waters. Vienna’s PV oil associates said that by Monday about 30 cargoes of gasoline from those countries to the US had been arranged.
On London’s International Petroleum Exchange, October Brent was down $1,21 to $64,85 a barrel by midday in Europe — close to what it had been fetching before Katrina hit.
The New York Mercantile Exchange was closed for the Labour Day holiday. Benchmark light, sweet crude had closed on Friday at $67,57 a barrel, down $1,90 after the International Energy Agency (IEA) on Friday announced its 26 members would release two million barrels daily for 30 days to meet shortfalls in world energy markets.
The IEA groups industrialised nations under the Organisation of Economic Cooperation and Development umbrella. Its members began stockpiling crude following the oil shocks of the 1970s.
The total release from the IEA includes 30-million from the US’s own strategic petroleum reserve, which is near its capacity of about 700-million barrels stored in salt caverns in Texas and Louisiana — the state hardest hit by Katrina.
But analysts urged caution, despite the respite.
”Be wary of good news. The situation remains horrific and light will be at the end of a very long tunnel,” brokerage Fimat said in a research note.
Petroleum prices soared last week after the hurricane’s direct hit on US petroleum infrastructure responsible for 30% of its crude production, a quarter of its gas and its import terminals.
Hurricane Katrina pinched US fuel supply, causing spot shortages and price spikes throughout the country. The storm shut eight major refineries and caused 12 others to run at reduced rates when their crude-oil supplies were cut.
Refineries in Louisiana expect to be running within the week. Motiva Enterprises, a joint venture of Royal Dutch Shell and state-owned Saudi Arabian Oil Company, has begun to restart its 235 000-barrel-a-day refinery.
That’s the second refinery to restart after Hurricane Katrina.
Marathon Oil restarted its 245 000-barrel-a-day refinery last week and expected the facility to be operating at full capacity on Monday.
The prospects for four other refineries that shut down ahead of the storm are more dire. The plants, in hard-hit areas south-east of New Orleans and in Mississippi, can process about 880 000 barrels a day of crude, more than 5% of total US capacity.
Chevron’s 325 000-barrel-a-day Pascagoula, Mississippi, facility and ConocoPhillips’ 255 000-barrel-a-day Alliance refinery in Belle Chasse, Louisiana, have suffered ”major damage”, the US Energy Department said.
Also improving crude-oil supply, the Louisiana Offshore Oil Port — the key facility for offloading and distributing imported crude oil on the US Gulf Coast — said on Saturday it is able to operate at about 75% capacity after power was restored at its Clovelly, Louisiana, storage facility. Deliveries of crude oil to the Capline Pipeline supplying refineries in the Midwest should begin on Sunday.
Nymex crude soared to an all-time high of $70,85 a barrel on August 30, followed closely by highs in gasoline and natural gas.
”It should be a wake-up call for US energy planners,” said Energyintel analyst Peter Kemp in London.
Even before Katrina, markets were on edge because high demand in the US and China had whittled back global excess capacity to just 1,5-million barrels of the global daily diet of crude, which means there was little left to offset any unplanned production snag. — Sapa-AP
Associated Press writer En-Lai Yeoh contributed to this report from Singapore