- The Washington Times - Wednesday, September 15, 2004


The loss of more than three-quarters of daily oil production in the Gulf of Mexico, and a significant amount of refining capacity, as a result of Hurricane Ivan should not cause U.S. motorists much long-term pain at the pump — so long as Ivan does not cause the industry any lasting infrastructure damage.

The expectation of only short-term turbulence within the petroleum sector helped push oil prices lower yesterday, even as Ivan roared toward the Gulf Coast with 135 mph winds and after the government reported that tanker delays had caused a sharp drop in the nation’s oil supply.

Light sweet crude for October delivery fell 81 cents to $43.58 per barrel on the New York Mercantile Exchange.

The decline followed a two-day surge in crude futures, suggesting traders locked in profits once they sensed prices had risen too high on Ivan-related supply fears.

The Organization of Petroleum Exporting Countries’ announcement yesterday that it would raise its official output target by 1 million barrels a day to 27 million barrels had little effect on oil markets because the cartel has been exceeding that quota since the beginning of the year, analysts said.

While retail gasoline prices already have nudged higher in recent days in some parts of the country as a result of supply disruptions and fears stoked by Ivan and other tropical storms, analysts said the impact should be short-lived. The average retail price of gasoline was $1.85 a gallon last week.

Tom Kloza, director of Oil Price Information Service in Lakewood, N.J., said he expected hurricane-related refinery shutdowns to cause U.S. gas supplies to decline by as much as 5 million barrels, or roughly 2 percent.

It’s a significant amount, Mr. Kloza said, but fortunately for U.S. motorists and the economy, it comes as demand is naturally tapering off after the busy summer driving season.

“In the Southeast we’re going to see some significant price increases in the next 10 days,” Mr. Kloza said. “But it shouldn’t last. By the time the leaves start changing, Ivan will be in the rear-view mirror.”

The only caveat, he said, is if refineries and production platforms in the Gulf aren’t back up and running within a few days after the storm passes.

The Energy Department said in its weekly report that commercially available inventories of crude fell by a larger-than-expected 7.1 million barrels in the week ended Sept. 10, leaving supplies at 278.6 million barrels, or 1 percent below last year’s level.

Analysts said they are more worried about the potential impact prolonged refinery shutdowns would have on the prices of heating oil and other distillate fuels, such as diesel and jet fuel. But, with history as their guide, they cautioned against drawing dire conclusions.

“Historically, the market has tended to exaggerate the impact of hurricanes,” said James Steel, director of commodities and oil research at Refco, a New York brokerage.

“Oil installations are by design incredibly hardy and they can take quite a pounding,” he added. “The evacuations have been more of a safety issue for the personnel than it has been of the likely damage to any structure, whether it be an oil production platform or a refinery.”

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