According to preliminary estimates from the Minerals Management Service, 7 platforms were destroyed by the hurricane and 4 were heavily damaged, and 13 leaks in oil and gas pipelines were reported. It could take up to three months to resume normal operations.....
With Oil Prices Up, It Could Be a Long Winter
By JAD MOUAWAD
Published: October 8, 2004
Over the summer, rising oil prices meant higher gasoline costs for drivers in the United States. This winter, as crude oil touched $53 a barrel yesterday, they will translate into higher heating bills for households.
In New York, crude oil futures hit a record yesterday, closing at $52.67. The contract is up nearly $20 a barrel this year. Heating-oil contracts for November delivery rose a cent, to $1.43 a gallon, the highest since the contract began trading in 1978.
The price of heating oil rose after some refineries in the Gulf of Mexico were shut down ahead of Hurricane Ivan, which coincided with a seasonal maintenance period. As a result, heating-oil stocks are lower than a year ago, raising worries about tight supplies this winter.
"The market has switched some of its concern from gasoline to heating oil," said Craig Pennington, the head of global energy at Schroders. "It's getting jittery at a time when inventories need to rebuild."
Adding to the disruptions in the United States, the main oil workers' union in Nigeria said yesterday that it would join a national strike, set to begin next week, unless the government agreed to talks on rising fuel prices, The Associated Press reported. Nigeria, which produces more than two million barrels a day, is the fifth-largest source of crude for the United States.
Also, Nigerian oil workers at Royal Dutch/Shell started a surprise two-day strike yesterday to protest job cuts. Shell accounts for about half of Nigeria's daily oil production.
Some analysts say crude oil prices could reach $60 a barrel, double last year's prices, if supplies were suddenly interrupted or the winter were very cold.
For prices to drop, markets "need reassurance about Gulf of Mexico production coming back on stream and they need reassurance about Nigeria," Mr. Pennington said.
To make up for lost production in the gulf, the Bush administration has approved five oil loans, totaling 4.7 million barrels, from federal stockpiles. But the government has opposed releasing oil from its Strategic Petroleum Reserve, which it is instead filling to capacity.
This year, oil prices have been driven up more than 60 percent by the highest demand growth in 25 years. That has stretched production worldwide, leaving little spare capacity to make up for any shortages in oil supplies.
Although there have been no major interruptions in supplies, exports from countries like Iraq, Nigeria and Venezuela have been unreliable for more than a year.
The latest distraction has been a string of severe hurricanes hitting the Caribbean. Doug Leggate, an oil analyst at Smith Barney, said disruptions caused by Hurricane Ivan, which hit the Florida Panhandle and other gulf areas three weeks ago, "have been a shock to the market."
"This has surprised everyone," he said. "But it's not a demand thing, it's all about the storms."
Output in the Gulf of Mexico, which accounts for a quarter of American domestic production, is down a third, or 470,000 barrels a day, according to the federal Minerals Management Service.
Many traders had underestimated how long it would take to repair damages to some of the 4,000 platforms in the area. As of Wednesday, more than 16.6 million barrels of oil had been lost because of Ivan, or 2.7 percent of the region's yearly output.
According to preliminary estimates from the Minerals Management Service, 7 platforms were destroyed by the hurricane and 4 were heavily damaged, and 13 leaks in oil and gas pipelines were reported. It could take up to three months to resume normal operations.
The impact of rising oil prices on the economy has so far been limited. But with presidential elections next month, the rising costs to Americans could become an election issue.
Still, rising prices could curb demand in the second half of the year, said Mr. Pennington of Schroders. "Will we see a demand shock?" he asked. "I don't think so. It's going to be a gradual downturn in demand as high prices start to bite."
Homeowners in the Northeast, for example, are expected to spend an average $1,223 this winter on heating oil. That is 28 percent, or $270, more than last year, according to the annual winter outlook published by the federal Energy Information Administration.
In the Midwest, spending on propane is expected to increase 22 percent, to $1,396, the information agency said, and spending on natural gas for household heating are expected to rise 15 percent compared with last year, to about $1,003.
"Heating-fuel expenditures per household are expected to rise this winter in all regions of the country, reflecting both higher fuel prices and, in some areas, colder weather than last year," the agency, a unit of the Energy Department, said in the report released Wednesday.
Last year, heating expenditures were unchanged, mainly because of a mild winter, the agency said. The report provides the government's outlook from October 2004 to March 2005.
The National Oceanic and Atmospheric Administration said it expected winter temperatures to be colder than normal in the Southeast and mid-Atlantic regions. But for the Midwest and Northeast, the agency said, chances were about even of getting colder, warmer or average temperatures.
Oil inventories in the United States grew by 1.1 million barrels, to 274 million barrels, in the week ended Oct. 1, the Energy Department said Wednesday. That is 4 percent below levels a year ago. |
