Oil extends losses, stockpiles to open
09/05/2005
Monday September 5, 2005
SINGAPORE (Reuters) - Oil fell almost $1 on Monday, extending Friday’s drop to near pre-Katrina levels as industrialised nations agreed to release 60 million barrels of emergency oil stocks to ease a U.S. fuel supply crisis.
Brent crude futures on the International Petroleum Exchange (IPE) deepened Friday’s $1.66 losses to trade down 86 cents, or 1.3 percent, at $65.20 a barrel, about even with levels before the hurricane disrupted the U.S. oil industry.
“Literally and figuratively, I think we’ve weathered the storm, as the release of strategic reserves has calmed the market,” said David Thurtell, commodity strategist at the Commonwealth Bank of Australia.
Activity was limited as the more active New York Mercantile Exchange (NYMEX) was shut for the U.S. Labor Day holiday.
U.S. crude closed down $1.90 at $67.57 on Friday after news of a coordinated stockdraw drove prices further away from their record $70.85 a barrel high, touched last Tuesday.
The International Energy Agency (IEA) confirmed late on Friday that its 26 members would release 2 million barrels per day (bpd) of oil for 30 days to offset the impact of the killer storm, which knocked out a tenth of U.S. refinery output and a quarter of its domestic crude production last week.
It is the first time since 1991 that the IEA has tapped its members’ 1.5 billion barrels in government oil stocks, created in the 1970s after the Arab oil embargo.
The United States will auction off half the total in the form of crude oil from their Strategic Petroleum Reserve (SPR), while European and Asian countries may be able to supply more oil products such as gasoline, which are in very short supply.
Japan, whose massive state oil reserves are also entirely crude oil, said it would supply 240,000 bpd of the total, with the release set to be mostly oil products from private-sector inventories.
STILL STRUGGLING
Extra fuel supplies will come as good news for the United States, which has been hit by sporadic shortages and soaring prices, prompting President George W. Bush to urge Americans to go easy at the pump. U.S. gasoline demand accounts for more than a tenth of the world’s oil consumption.
The U.S. oil industry is still struggling to recover from Hurricane Katrina, which flooded refineries, cut power supplies to pipelines and knocked down rigs and platforms a week ago.
Only one of the eight refineries in Louisiana and Mississippi shut by Hurricane Katrina had restarted by Sunday evening, while two of the largest plants have suffered extensive flooding and could be down for months, the government has said.
Another dozen plants were running at reduced rates because of crude supply disruptions, further straining fuel supplies in an industry that was already operating at maximum rates.
But, with power returning to the region, pipelines were able to increase operating rates. The nation’s biggest refined-oil pipeline, Colonial, was expected to reach 86 percent of capacity over the weekend, more quickly than expected.
Crude oil output from the Gulf of Mexico, home to a quarter of U.S. domestic production, was running at 21 percent of its normal rate, up 10 percentage points from Friday.