Sun, Sep 11, 2005 - Page 10 News List

Global oil prices ease after massive supply injection


World oil prices eased on Friday with a massive injection of supplies by industrial powers diminishing supply fears after Hurricane Katrina.

New York's main contract, light sweet crude for delivery in October, fell US$0.41 to close at US$64.08 a barrel. The price of Brent North Sea crude for October delivery dropped US$0.24 to US$62.84 a barrel in London. US gasoline futures for October delivery, which soared after Katrina played havoc with southern US oil refineries, fell below US$2 to end down US$0.0758 at US$1.9557.

"We're going to have an armada of gasoline, crude and [distillate] product from the strategic reserves," AG Edwards analyst Bill O'Grady said in explaining the drop in prices.

The US is releasing 30 million barrels of oil from its Strategic Petroleum Reserve, and its partners in the International Energy Agency (IEA) are furnishing another 30 million barrels.

"There is ample crude availability," Seth Kleinman at PFC Energy said.

The IEA board will meet on Sept. 15 to take stock of the oil markets, which have been calmed by the emergency release after first going into shock when Katrina knocked out up to 20 percent of US refinery capacity.

All but four refineries on the Gulf of Mexico, representing four-five percent of US capacity, are now back up.

In the Gulf itself, 60 percent of crude production and 38 percent of natural gas output remains offline, a vast improvement from just before Katrina made landfall on Aug. 29 when drilling ground to a halt.

Oil prices had spent much of Friday higher after US government figures revealed the extent of Katrina's impact on inventories of crude and gasoline. The US Department of Energy report showed a slump of 6.4 million barrels in US crude stockpiles and a fall of 4.3 million barrels in gasoline levels.

The IEA said that Katrina had delivered a "severe" shock to Gulf of Mexico oil supplies, damaging pipelines and scores of platforms, but that 90 percent of production could be back on stream within a few months.

Katrina is likely to curtail world oil production until the end of the year by 55 million barrels, about the same as Hurricane Ivan last year, the IEA estimated in a report.

Supply fears have not gone away from the market, Sucden analyst Sam Tilley said.

"It may yet be seen that some of the more seriously damaged facilities take longer to come back online," he said.

Anglo-Dutch energy giant Royal Dutch Shell said on Friday it expected its production in the Gulf of Mexico to be restored to about 60 percent of pre-Katrina levels by the end of the year.

Shell added that production had restarted at all its assets in the western Gulf that had been suspended because of Katrina.

But while industrialized countries have agreed to dip into their strategic reserves, the market is concerned that strained refineries do not have the capacity to turn the extra crude quickly enough into gasoline and heating oil.

Even before the killer storm, US refineries were already seen as inadequate to meet demand.

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