Sun, Jun 12, 2005 - Page 10 News List

Oil prices fall as storm interferes with production

SHARP DROP Despite its limited impact, Tropical Storm Arlene provided a taste of what could be lying in store during this year's hurricane season


Oil prices fell sharply Friday as Tropical Storm Arlene moved into the Gulf of Mexico with minimal impact on production.

Arlene, the hurricane season's first named storm, forced oil and gas companies to evacuate workers from offshore rigs and to shut in some production. In pushing oil prices lower, traders were betting that production would return to normal levels by tomorrow.

Friday's late selling was "in anticipation that by Monday, the remnants of the storm will be somewhere over the Midwest and that production will be getting back to normal in the Gulf of Mexico," said Tim Evans, senior analyst at IFR Markets in New York.

Crude oil futures for July delivery on the New York Mercantile Exchange fell US$0.74 to US$53.54 a barrel after rising as high as US$54.95 a barrel.

Among petroleum products futures, gasoline futures performed the worst. Gasoline for July delivery slid US$0.0278 to US$1.5436 a gallon. Heating oil for the same month finished with a more modest loss of US$0.0182 to US$1.6074 a gallon. Heating oil futures had spiked briefly on news that a snag at Sunoco's Philadelphia refinery had affected the refinery's distillate output.

Prices were extremely volatile throughout the session amid uncertainty about Arlene. The National Hurricane Center's warning on Friday morning that the storm could gain hurricane strength before making landfall helped send prices sharply higher.

But private forecasters later said that chances of Arlene becoming a hurricane were very small, and that Arlene would most likely make landfall as a tropical storm. Weather2000 said that there was a 90 percent chance that Arlene would make landfall east of New Orleans.

Gulf of Mexico operators, meanwhile, conducted routine evacuations of workers from offshore platforms.

Thus far, Arlene has shut in a known 77,800 barrels a day of oil, or 5 percent of Gulf of Mexico production, companies said. A number of companies have shut production but haven't specified the affected volumes, so the true tally is higher.

The known total production outage could rise to 9 percent of Gulf output, as Chevron Corp said it expects to shut 50,000 barrels a day in output by closing down its massive Petronius platform later Friday, Dow Jones Newswires reported.

About 1.5 million barrels of oil is produced each day in the Gulf, about a quarter of the US total, according to the Interior Department's Minerals Management Service.

Despite its limited impact, however, Arlene provided a taste of what could be lying in store during this year's hurricane season, which is expected to be more active than usual. With global oil production stretched to the limit and demand on the rise, traders are worried that any output disruption could cause a supply shortage, sending prices to new record highs.

Last September, Hurricane Ivan knocked out pipelines and platforms in the Gulf, cutting into oil and gas production for several months. The resulting drop in oil inventories helped lift oil prices to a record high within weeks.

Contributing to the decline in commercial inventories last year was a dogged effort by the Bush administration to fill up the US' strategic petroleum reserves, according to some industry analysts. On Friday, Energy Secretary Samuel Bodman said the government will stop sending crude to the Strategic Petroleum Reserve in August when the stockpiles reach their target of 700 million barrels.

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