Oil Climbs to Record $66.16 on Concern Refineries Are Strained
Aug. 12 (Bloomberg) -- Crude oil rose to a record for a fifth day, reaching $66.16 a barrel, after a power failure at a ConocoPhillips refinery in the U.S. sent gasoline prices to all- time highs amid deepening concern processing plants are strained.
``There are clearly issues in both production and refining capacities because plants have been running so hard that accidents keep happening,'' said Richard Savage, global head of commodities research at Bank of America in London. ``There's also a view in the market that prices can still move higher even without disruptions to supply. There's no rationality.''
Crude oil for September delivery rose as much as 36 cents to $66.16 a barrel on the New York Mercantile Exchange and was up 32 cents at $66.12 at 1:55 p.m. London time. Prices this week have jumped 6.1 percent, the largest gain in eight weeks, and have more than doubled from the end of 2003. From 1995 through 1999, prices averaged less than $19 a barrel.
Oil may rise further next week as demand for gasoline and other fuels increases, a Bloomberg survey of 55 analysts and strategists yesterday showed. Global petroleum product use, including gasoline, will rise 2 percent, or 1.6 million barrels a day this year, the International Energy Agency said yesterday.
The options market predicts a 1-in-3 chance of oil prices surpassing $75 a barrel before December, compared with a 1-in-20 chance at the start of the year, Michael Lewis, head of commodities research at Deutsche Bank AG in London, wrote in a report today.
``The ability of refined products to continually drive crude market strength shows'' refining capacity ``is inadequate to support current product demand levels,'' Deutsche Bank's Lewis and Duncan Anderson wrote in the note.
Gasoline Prices
U.S. drivers on average paid $2.413 for a gallon of regular gasoline yesterday, the highest price ever, according to the AAA, formerly the American Automobile Association. Retail prices are set to keep climbing after futures today reached a record $1.963 a gallon on Nymex, up 51 percent from a year ago.
In the past five years, retail gasoline prices have on average been 62 cents higher than Nymex futures, Bloomberg data shows. Based on today's futures, prices at the pump could reach $2.58 a gallon this year. The U.S. Energy Department forecasts they will stay above $2.10 through the end of 2006.
U.S. refineries have operated at more than 90 percent of capacity since March, racing to meet surging demand for fuel in the world's largest consuming nation. They've also increased supplies of heating oil before requirements pick up in the fourth quarter. No new refineries have been built in the U.S. in almost 30 years.
Demand Still Strong
Prices surged in 1974 after the Arab oil embargo the previous year. The Iranian revolution of 1979 and the country's war against Iraq in the 1980s, sent the cost of a barrel for U.S. refiners to $35.24 in 1981, according to the Energy Department. That's about $75 in today's dollars.
``It's misleading to draw a comparison between what is happening now and what happened in 1973 and 1974,'' said Simon Hayley, senior international economist at Capital Economics in London. ``Even if the price was the same in real terms, industrialized economies aren't as dependent on oil as they used to be. If we got into three-figure oil prices, that might start to have an impact'' on the world economy.
The IEA, an adviser to 26 industrialized nations on energy, yesterday said that prices of more than $60 a barrel have done little to restrain demand.
Brent crude for September settlement gained 35 cents, or 0.5 percent, to $65.73 after reaching a record $65.88 on London's International Petroleum Exchange.
Refinery Breakdowns
Yesterday's disruption at the plant of ConocoPhillips, the largest U.S. refiner, and a fire at a Sunoco Inc. pipeline in Texas are among at least 14 reported since July 20. Shutdowns and rising demand are forcing the depletion of U.S. gasoline inventories, which fell for a sixth straight week last week, according to the Energy Department.
ConocoPhillips said a power cut shut some units at its Wood River plant in Illinois, its largest, and it was ``working to regain normal operations.'' The plant, which can process 306,000 barrels a day, had a fire in a processing unit after the power failure, the Wood River Fire Department said.
Thirty-eight of 69 analysts and strategists surveyed, or 55 percent, said oil will gain next week. Twenty-four, or 35 percent, said prices will fall and seven forecast little change.
``I refuse to believe that it's'' users of oil ``thinking let's buy at $66 because we are running out,'' Bank of America's Savage said. ``They are being forced to take that extra barrel at these prices by the financial players who are leading the rally.''
`Massive Pressure'
Hedge-fund managers and other large speculators more than doubled their net-long position in New York oil futures in the week ended Aug. 2, according to U.S. Commodity Futures Trading Commission data. A long position is a bet that prices will rise.
At these prices, ``we are starting to put massive pressure on the world's usage of oil, but the market isn't in the mood to focus on fundamentals'' like rising inventories and slowing demand growth, Savage said.
Sunoco, the largest refiner in the U.S. Northeast, said yesterday that a pipeline near Lufkin, Texas, caught fire after being ruptured by workers. The pipeline, operated by one of its units, carries crude within the state from Nederland, near the Gulf of Mexico, to Longview.
Refinery units at plants run by Chevron Corp., BP Plc, Valero Energy Corp., Exxon Mobil Corp. and Murphy Oil Corp. also had unplanned shutdowns in recent weeks. The U.S. consumes about 10 percent of the world's oil to make gasoline.
``Markets are scared at the moment and not responding to fundamentals,'' said Hayley from Capital Economics. Eventually, ``the market will find out oil isn't as scarce. Next year we will start to get a supply response'' to high prices.
Distillate Stockpiles
U.S. inventories of distillates, a category of fuels that includes heating oil and diesel, have risen for the past 12 consecutive weeks, exceeding their five-year seasonal average, according to the Energy Department.
The accumulation of supplies means refiners may be under less strain to meet the peak in demand in the fourth quarter. Global oil consumption is expected to rise to a record 85.9 million barrels a day in the period, according to the Paris-based IEA.
``There should be a trend for prices to stabilize or fall,'' said Ramon Espinasa, an oil economist and consultant for the Inter- American Development Bank in Washington. ``Fundamentals are giving signs that supplies are matching or even exceeding demand.'' |
