Gas trends

Crude prices closed at a new 5-month low Sept. 3 in the New York market as oil and gas production and processing began coming back on stream after Hurricane Gustav failed to inflict much damage on those Gulf Coast facilities earlier this week.

However, some Gulf Coast production and processing remain shut in due to storm disruptions of retail electrical power. “The key barrier to restoring Gulf of Mexico gas flows appears to be the lack of retail electric service at many of the Louisiana coastal-area processing plants,” said analysts at Pritchard Capital Partners LLC, New Orleans. “Most of the pipelines with offshore links or laterals had essentially the same message: They will resume scheduling offshore receipt points on an expedited basis, but only if flowing supplies can be confirmed. In some cases the resumption of operations at onshore processing plants is also a factor.” To hurry the return of electrical power, Louisiana’s governor has offered the help of National Guard troops in clearing debris.

Entergy Corp. restored two critical 230-kv transmission lines Sept. 3, allowing the Louisiana’s largest utility to reconnect New Orleans to the statewide power grid, officials said. Full recovery is still weeks away, however, officials said. Earlier aerial inspection showed extensive damage to power lines in the Baton Rouge area, with many steel towers down. Such damage was not inflicted by Hurricane Katrina in 2005.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “The oil industry was better prepared than in 2005 but not the utilities. Damage to the power grid is still keeping a significant amount of refinery capacity unable to restart.” He said, “The loss of refined product production is translating into a sharp move in the time-spreads of gasoline deeper into backwardation; a move which is also making for a stronger 3-2-1 refinery margin on the prompt position. The loss of product is real and will surely create some local shortages and jump in cash differentials. However, as long as it is confirmed that refinery assets have not been touched, product cracks will be a sell as soon as the power lines are back (but we don’t know when this will be). For crude oil, more refining capacity offline than production should translate in a higher rate of stock building.”

Prices for crude and refined products were up modestly in early trading Sept. 4. “But the real action (or chaos, in the view of some observers) is confined to the spot markets,” said Pritchard Capital analysts. “Very wide variations in basis differentials have pushed key spot markets for gasoline in different directions, with particular strength in Chicago and notable weakness on the West Coast. Most commodities, including gold and oil, are higher this morning and October West Texas Intermediate was able to post some overnight increases of as much as $1/bbl,” they said.

Pritchard Capital warned that markets might “become more muddled” after the Energy Information Administration released its weekly statistical report on energy information Sept. 4. That report was a day late this week because of the Labor Day holiday in the US. “This is one of those reports that may be very misleading—it measures a market that was preparing for Gustav but not yet reflecting some of the panic loading or substantial delays that eventually impacted many ports over the weekend,” analysts said.

US inventories
The EIA said commercial US crude inventories fell 1.9 million bbl to 303.9 million bbl in the week ended Aug. 29. The consensus among Wall Street analysts was for no change. Gasoline stocks dropped 1 million bbl to 194.4 million bbl during the same week, a little less than the 1.2 million bbl decline expected by analysts. Distillate fuel inventories declined 400,000 bbl to 131.7 million bbl vs. an expected increase of 700,000 bbl. Propane and propylene inventories increased by 900,000 bbl to 52.9 million bbl in the same period.

Imports of crude into the US dropped 149,000 b/d to 9.8 million b/d during that week. The input of crude into the US refining system increased, however, up 147,000 b/d to 15.3 million b/d with units operating at 88.7% of capacity. Gasoline production increased to 9.4 million b/d, while distillate fuels production rose to 4.5 million b/d.

EIA also reported the injection of 90 bcf of natural gas into US underground storage in the same week. That brought the amount of working gas in storage to 2.8 tcf, down 148 bcf from year-ago levels but 102 bcf above the 5-year average for that same period.

The US Minerals Management Service said as of noon Sept. 3 that workers still had not returned to 599 of the 717 manned production platforms and 91 of the 121 mobile drilling rigs in the Gulf of Mexico. Officials reported 95.8% of the oil and 91.6% of the natural gas normally produced from US leases in the gulf remained shut in.

The Louisiana Offshore Oil Port said it hoped to resume crude oil deliveries to coastal refineries Sept. 4 using onshore storage, with tanker off-loadings resuming possibly this weekend. “We found no visible damage offshore, but we need to get out there and we’re working on that now,” a spokeswoman said.

Meanwhile, the US Energy Department said Marathon Oil Corp. requested oil from the Strategic Petroleum Reserve to meet the supply needs of its 192,000 b/d refinery in Robinson, Ill., and its 222,000 b/d refinery in Catlettsburg, Ky. DOE did not say how much reserve oil Marathon was seeking. However, DOE officials said Citgo Petroleum Corp. withdrew its request for 250,000 bbl of oil from the emergency stockpile for the company’s Lake Charles, La., refinery. The company said it found other supplies to meet its needs (OGJ Online, Sept. 3, 2008).

In other news, it was reported a helicopter crashed Sept. 3 onto the deck of the Maersk jack up drilling rig off the coast of Dubai, killing all seven people on board and forcing the closure of the Rashid oil field.

Energy prices
The October contract for benchmark US light, sweet crudes dropped 36¢ to $109.35/bbl Sept. 3 on the New York Mercantile Exchange. The November contract lost 43¢ to $109.87/bbl. On the US spot market, WTI at Cushing, Okla., closed at $109.35/bbl down from a corrected $110.21/bbl in the previous session. Heating oil for October inched up by 0.52¢ to $3.08/gal on NYMEX. The October contract for reformulated blend stock for oxygenate blending (RBOB) advanced 3.31¢ to $2.77/gal.

Analysts at Pritchard Capital said, “RBOB futures closed with a late spurt yesterday, and there are definitely concerns about near term supplies of many gasoline grades. Locations that rely on boutique summer blends could see some trouble: We are hearing of scarce supply of low Reid vapor pressure gasoline in Alabama and in western Pennsylvania, for example.” They said, “Hurricane Hanna could complicate things as well since it may delay some imports of gasoline into East Coast ports. Futures don’t necessarily reflect some of the wild variations in spot markets because they represent October delivery.”

The October natural gas contract crept up just 0.3¢ to close at $7.26/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 99¢ to $7.23/MMbtu. Henry Hub resumed trading Sept. 3 after being idle Sept. 2 due to a shutdown by operator Sabine Pipe Line in advance of the hurricane. Pritchard Capital noted, “As it became more evident Wednesday that Hurricane Gustav left the energy infrastructure in the Gulf of Mexico intact, October natural gas futures continued to press the downside, coming within a couple of pennies of breaking below $7/MMbtu” at an intraday low of $7.028/MMbtu on NYMEX.

In London, the October IPE contract for North Sea Brent crude dropped 28¢ to $108.06/bbl. Gas oil for September lost $4.75 to $974.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 13 reference crudes increased 29¢ to $103.69/bbl. - SOURCE: ogj.com

Several hedge funds face big financial losses after wrongly predicting that oil and gas prices would rise as a result of Hurricane Gustav slamming into the Gulf coast of the US earlier this week.

As Gustav swept towards New Orleans on Monday, catastrophe experts were predicting insured losses of up to $7 billion (£3.9 billion) as offshore oil rigs faced destruction and the storm threatened energy supplies.

Commodities hedge funds saw the glum prediction as an opportunity, betting heavily, using the futures market, that prices would surge in the wake of the hurricane chaos.

In New York, crude oil leapt to $116 a barrel in the hours before Gustav hit the US coastline. On Nymex, natural gas futures rose 45.3 cents to $8.278 per 1,000 cubic feet. However, the experts, and the hedge funds, were caught out. By the time the storm was sending water lapping over New Orleans’s flood barriers, Gustav had been downgraded by the National Hurricane Centre to a Category 1 event. Oil eased to $105.46, with dealers soon speculating that it would fall to $100.

One hedge fund executive said: “There’s going to be a lot of commodities funds looking at big losses right now. Everyone thought Gustav would hit supply and push the price right up.”

Fluctuations in the oil price are thought to have contributed to yesterday’s closure by Ospraie Management, the hedge fund, of its $3 billion flagship commodities fund, run by Dwight Anderson, a market veteran.

Ospraie wrote to investors yesterday saying that the fund had fallen 27 per cent in August because of losses in energy, natural resources and mining stocks. It is thought that the fund was down almost 40 per cent over the whole year. In the letter, Mr Anderson said: “After nine years of striving to be a good steward of your capital, I am very sorry for this outcome.”

The fund’s demise is a further blow to Lehman Brothers, the struggling US investment bank, which bought a one-fifth stake in Ospraie three years ago. - SOURCE: The Times

Iran has invited Brazil to join the Organization of Petroleum Exporting Countries, according to a Brazilian senior government official.

Brazilian Oil Minister Edison Lobao, in an interview with Brazil’s Folha newspaper, said OPEC members believe Brazil will in the future be one of the largest oil producers worldwide.

But Brazil’s President Luiz Inacio Lula da Silva, accompanied by Lobao Sept. 2 at the inaugural ceremony for the first oil production in presalt rocks off Espirito Santo state, demurred, saying that Brazil has been investing in its refining capacity in order to become an exporter of fuel, not crude oil.

In June, Lobao made similar claims based on the fact that Brazil was asked to attend a meeting of oil producer and consumer nations in Jeddah. “The simple fact that we were invited for an emergency meeting means, in my view, OPEC intends to invite us to join, if not now, then in the short run,” Lobao had said. - SOURCE: ogj.com

Crude prices dropped to a 5-month low of $105.46/bbl in intraday trading before closing a little under $110/bbl Sept. 2 on indications of little disruption by Hurricane Gustav to oil and gas operations in the Gulf of Mexico and along the US Gulf Coast during the 3-day Labor Day weekend.

Although still near historical highs, the price of crude on world markets is down sharply from a record $147/bbl in early July, primarily due to declining global demand for crude because of economic weakness in the US and Europe.

“Oil prices continue to slide as the market regains its composure in the wake of Hurricane Gustav,” said analysts at Pritchard Capital Partners LLC, New Orleans. “Most oil refineries standing in the path of Gustav are in the process of resuming production and report only minor damage. However, power issues remain a problem as electrical outages plague some regions.”

The Department of Energy’s Office of Electricity Delivery and Energy Reliability earlier reported 12 Gulf Coast refineries with combined capacities representing 12% of the US total were idle and 10 more had reduced operations Sept. 1 because the hurricane. Refinery outages totaled nearly 2.1 million b/d (OGJ Online, Sept. 1, 2008). The DOE said 49% of Louisiana remained without electric power Sept. 2.

EQECAT Inc. in Oakland, Calif., a wholly owned subsidiary of ABS Group that describes itself as the leading authority on extreme-risk modeling, reduced its earlier estimate of total onshore insured losses as a result of Gustav to $3-7 billion, primarily in Louisiana, from an initial landfall estimate of $6-10 billion. However, EQECAT stood by its estimate that “shut-in production for the next year will not exceed about 5% of the production capacity for crude oil, and 5% of production capacity for natural gas,” said company officials. They will assess any potential damage to coastal refineries “in coming days.”

The US Minerals Management Service reported Sept. 2 that workers were evacuated from 632 of the 717 manned production platforms and 110 of the 121 drilling rigs in the US sector of the gulf. It said 100 % of the estimated 1.3 million b/d of oil and 95.4 % of the estimated 7.4 bcfd of natural gas production from federal leases in the gulf were shut in because of the hurricane.

Pride International Inc. said air reconnaissance found no visible damage to its jack up rigs in or near the path of Hurricane Gustav. Workers will conduct a more thorough inspection as they return to those units.

Noble Corp. said a preliminary survey of its rigs in the gulf revealed no damage from the storm. The Sugar Land, Tex., company said it expects to complete a more comprehensive assessment of individual rigs over the next few days.

Hornbeck Offshore Services Inc. said its offshore supply vessel fleet continues to operate at 100% utilization. It hasn’t yet been able to assess conditions at its port facility in Port Fourchon, La., but preliminary reports indicate the area sustained minor damage.

Chevron Corp. said initial assessments indicated no serious damage to the deepwater Henry Hub complex in the Gulf of Mexico; the company partially lifted its force majeure resulting from the Aug. 30 evacuation of Vermillion Parish.

The 1.3 million b/d Louisiana Offshore Oil Port (LOOP), the only US port capable of accommodating the largest supertankers, has not yet resumed operations that were suspended Aug. 30 However, the Houston Ship Channel has reopened.

On Sept. 2, Jacques H. Rousseau, an analyst at Soleil-Back Bay Research, said, “No major refinery problems related to Hurricane Gustav have been reported yet. However, it could take a few more days before the full extent of the damages are known.”

Bloomberg News reported Citgo Petroleum Corp., owned by Petroleos de Venezuela SA, asked DOE to supply 250,000 bbl of crude from the US Strategic Petroleum Reserve to the company’s 429,500 b/d Lake Charles, La., refinery, which is among those operating at reduced runs. That is the only request for SPR crude that the DOE has received so far.

Shell Oil Co.’s chemical plant and a refinery belonging to Motiva Enterprises LLC (a Shell-Saudi Aramco joint venture) in Norco, La., maintained some power Sept. 2, and initial assessments indicated minimal damage to either facility. “Depending on resources, a restart for some units could begin over the next couple of days,” officials said. Motiva’s Convent, La., refinery was reported to have no electrical power due to downed power lines. Officials said additional back-up generators are enroute. “Restart of the refinery will depend on further assessments, repairs that are needed, and availability of dependent resources,” they said. Shell Chemical’s Geismar plant was without power as assessments continued. Initial reports indicated power lines were down.

Motiva’s Port Arthur, Tex., refinery was running at reduced rates Sept. 2. “There were no physical impacts to facilities from the storm. The site will look to ramp up production safely and as quickly as possible,” said company officials. Shell’s Deer Park, Tex., refinery and chemical plant continued to operate, as did the Shell Chemical plant in Mobile, Miss.

Pritchard Capital Partners said, “All in all the Gulf Coast refining infrastructure came out of the storm in good fashion—important since more than 2 million b/d of refining capacity was idled by the storm. Prices shot up in advance of Gustav but have taken a pounding since.”

The Association for Oil Pipelines said Capline and LoCap pipelines, representing a total of 2.4 million b/d of capacity, are shut down Sept. 2. Colonial Pipeline Co.’s 2.4 million b/d pipeline and Plantation Pipe Line Co.’s 600,000 b/d pipeline system that together move petroleum products to most markets east of the Mississippi River are operating at reduced rates.

Shell shut in all of its offshore crude pipelines, its operated Capline crude pipeline system, and its Houma-to-Houston crude oil pipeline system prior the hurricane. The company was in the process of fly-over assessments of its Gulf Coast pipelines and said it expected to have initial visual assessments completed Sept. 3. So far, it reported no major damage to any facilities and that products in pipelines and tanks were contained. “Power is out at many facilities, and we are working diligently with our utility providers to restore power systems safely and as quickly as possible. We are also deploying portable generators to assist in the recovery and restart process. Access to some areas due to debris on roadways and downed power lines remains a concern, and we will complete assessments when local authorities deem it safe for full access,” Shell officials said. Meanwhile they said, “Our refined products delivery systems in the Houston area continue to transport gasoline, diesel, and aviation fuel.”

Swift Energy Co. in Houston also was doing fly-over inspections of its coastal Louisiana properties Sept. 2. The company shut in all of its fields in south Louisiana, moved all of its contracted drilling rigs to safe harbor, and evacuated all workers in the path of Gustav by Aug. 31. Gustav made landfall Sept. 1, as a Category 2 Hurricane south of Houma, La., and 70 miles southwest of New Orleans. Like many companies, Swift Energy carries replacement property insurance for its facilities and shore base, with standard deductibles.

Energy prices
The October contract of benchmark US light, sweet crudes dropped $5.75 to close at $109.71/bbl Sept. 2 on the New York Mercantile Exchange. The November contract lost $5.55 to $110.30/bbl. On the US spot market, a price for West Texas Intermediate at Cushing, Okla., was not available. Heating oil for October was down 11.83¢ to $3.07/gal on NYMEX. The October contract for reformulated blend stock for oxygenate blending (RBOB) retreated 12.05¢ to $2.73/gal.

The October natural gas contract fell 68.2¢ to $7.26/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was unchanged at $8.22/MMbtu.

In London, the October IPE contract for North Sea Brent dropped $1.07 to $108.34/bbl. The September contract for gas oil fell $7.75 to $979.25/tonne.

The average price of the Organization of Petroleum Exporting Countries’ basket of 13 benchmark crudes fell $6.62 to $103.40/bbl on Sept. 2. - SOURCE: ogj.com

President Bush said Tuesday that while it’s too early to assess Hurricane Gustav’s damage to U.S. oil infrastructure off the Gulf Coast, the storm should prompt Congress to OK more domestic oil production.

“One thing is for certain, when Congress comes back, they’ve got to understand that we need more domestic energy, not less,” Bush said in the Roosevelt Room.

He added: “One place to find it is offshore America — lands that have been taken off the books, so to speak, by congressional law — and now they need to give us a chance to find more oil and gas here at home.

“I know that the Congress has been on recess for a while, but this issue hasn’t gone away,” he said in a nudge to lawmakers who return from recess on Sept. 8.
Memories of Katrina

Bush, keeping a hands-on profile on the aftermath of the hurricane in contrast to the government’s poor response to Katrina, met in the Roosevelt Room with Vice President Dick Cheney and about 20 advisers, including the secretaries of Interior, Transportation and Energy.

Preliminary indications were that Gustav caused little damage to onshore and offshore facilities, though the full impact likely won’t be known for a couple of days. Some oil companies, rig owners and refiners were already putting equipment and people back in place to resume operations.

The price of oil, meanwhile, tumbled more than $8 a barrel in electronic trading on the New York Mercantile Exchange, suggesting traders were confident that the energy complex suffered only a glancing blow. (That followed an earlier drop of $5 in the immediate aftermath of the hurricane.)

Gustav roared ashore Monday morning and eight deaths were attributed to the storm in the U.S. after it killed at least 94 people across the Caribbean.

It was downgraded to a tropical depression early Tuesday, and mandatory evacuation orders were lifted for three Southeast Texas counties. Though New Orleans was largely spared, there still was damage and anxious evacuees told not to come home yet.
Gulf production shut down

In the days preceding Gustav, oil companies shut down virtually all oil and natural gas production in the Gulf, and the storm’s threat halted about 15% of the nation’s refining capacity based in the region. The U.S. Gulf Coast is home to nearly half the nation’s refining capacity, while offshore the Gulf accounts for about 25% of domestic oil production and 15 percent of natural gas output.

Bush said that during Katrina, the force of the storm moved rigs and anchors hit pipelines.

“We didn’t see much of that this time, but I will tell you it’s a little early to be making any forecasts,” he said.

Bush said Energy Secretary Samuel Bodman has been in touch with energy-producing states to help assess damage from Gustav and determine work that needs to be done. - SOURCE: CNNMoney

The Iraqi Ministry of Oil, renegotiating an agreement first signed more than a decade ago, has approved arrangements that will allow state-owned China National Petroleum Co. to develop Ahdab oil field.

The agreement, which restores a project that was cancelled after the 2003 US-led invasion of Iraq, was signed by Chinese officials and Iraqi Oil Minister Hussain al-Shahristani.

Under the contract, which still requires approval of the Iraqi and Chinese governments, CNPC will provide technical advisers, oil workers, and equipment to increase production at the field, which is in Wasit province, about 160 km southeast of Baghdad.

Shahristani said the two sides agreed to renegotiated terms of a deal signed in 1997. He said the contract has been changed to a set-fee service deal from the oil production-sharing agreement signed earlier.

CNPC will help Ahdab produce 110,000 b/d, up from the originally agreed 90,000 b/d, with first output expected in 3 years. According to Shahristani, the field should have an active life of some 20 years.

CNPC will own 75% of the joint venture, with Iraq’s state-owned Northern Oil Co. owning the remaining 25%. Shahristani said the contract, currently valued at some $3 billion, would be reviewed every quarter over its 22-year term.

Analysts saw the agreement as a breakthrough for China and CNPC over other countries and international oil companies.

Liu Youcheng, a Beijing-based analyst with Hongyuan Securities, noting that it has become more and more difficult to obtain equity and exploit rights in oil fields, said it is good for China to participate in the development through a service contract.

Alex Munton, an analyst with consultant Wood Mackenzie, said the biggest significance of the agreement is that CNPC will benefit as the first international oil company to be developing one of the giant discovered oil fields in Iraq in the new era.

According to Munton, CNPC will be the first with people on the ground and the first to develop a working relationship with Iraq’s Oil Ministry.

IOC deals rejected
Iraqi oil ministry officials earlier expressed hopes of signing contracts with international oil companies by the end of June. Now, according to ministry spokespersons, those talks with such firms as Royal Dutch Shell PLC, BP PLC, and Exxon Mobil Corp. are unlikely to proceed.

Last week, a top Iraqi official criticized international oil companies for trying to overcharge the war-torn nation and for ignoring what he referred to as their “humanitarian” duty to help develop Iraq’s battered oil industry.

The charge came after Iraq delayed the signing of short-term oil service contracts with oil majors due to disagreements over payment terms and their duration.

“The invitations to take part in these projects have not only an economic but a humanitarian character,” said Iraq’s electricity minister Karim Waheed after meetings with Russian energy minister Sergei Shmatko and the heads of Russian energy service firms.

“Some companies in those cases demanded sky-high prices for their services, thinking Iraq does not have a grasp of international financial markets. They were unpleasantly surprised when they found out we fully understand global commodity markets and global stock markets,” Waheed said. - SOURCE: ogj.com

Oil and natural gas prices were not as affected Aug. 29 as would normally be expected on the anticipation of a storm the size and speed of Gustav, which made landfall Sept. 1 as a Category 2 hurricane, to the south of Houma, La., about 70 miles southwest of New Orleans and 100 miles southeast of Lafayette, La., according to the National Hurricane Center. Markets in the US were closed that day due to the Labor Day holiday.

Analysts in the Houston office of Raymond James & Associates Inc. reported Sept. 2 that Gustav would have “minimal” impact on midstream operations along the Gulf Coast. They said, “While it is still too early to determine the exact magnitude of any damage and associated impact on volumes/cash flow, several partnerships are reporting short-term shut-ins and decreased pipeline throughput from diminished refining and production activity. All in, the focus will hinge on refinery utilization, as the Gulf of Mexico experienced over 2.8 million b/d of refinery capacity that was shut in due to Gustav.”

They said, “Likewise, attention will also be focused on reopening several Gulf Coast ports, including the LOOP, Houston ship channel (inbound deliveries), etc. Although very preliminary in nature (and exclusive of any declarations of force majeure), we would anticipate the aggregate impact to throughput to materialize less severe vs. perception.”

Production, damage reports
The US Minerals Management Service reported Sept. 1 that personnel have been evacuated from a total of 626 production platforms, equivalent to 87.3% of the 717 manned platforms in the gulf. Also, personnel from 100 rigs also have been evacuated, which represents 82.6% of the 121 rigs currently operating in the gulf.

Based on reports for operators in the gulf, MMS estimates that 100% of the 1.3 million b/d of oil production in the gulf has been shut-in. Also, 95.4% of the 7.4 bcfd of gas production in the gulf has been shut-in.

Both markets and industry await damage reports from refiners and exploration and production companies following the storm. Refiner Valero Energy Corp. reported than an initial assessment of the company’s St. Charles, La., refinery near New Orleans “has found no significant structural damage to operational units.”

The company’s Texas refineries, at Port Arthur, Texas City, and Houston, all remain at reduced rates, Valero reported, while its Corpus Christi plants are currently operating at planned rates.

Operator Swift Energy Co. reported that an initial airplane fly-over of its coastal Louisiana properties is being coordinated to assess the impact of the storm. Swift began implementing standard shut-down procedures in its coastal Louisiana properties due to weather risks from then Tropical Storm Gustav, which was forming in the gulf. “With the subsequent strengthening and path of the storm, Swift shut in all fields in its South Louisiana area, moved all drilling rigs to safe harbor, and all personnel were safely evacuated by early afternoon on Aug. 31,” the company said.

Swift said that the eye of Gustav passed about 35 miles west-southwest of its Bay de Chene field in Jefferson and Lafourche Parishes and about 50 miles west-southwest of its Lake Washington field in Plaquemines Parish. “Production from these fields and…other fields in the South Louisiana area will remain shut-in until it can be determined that a field can safely be returned to operation,” the company said.

It reported, “A full inspection is planned as soon as personnel can safely reenter each field and physically inspect all the properties and facilities. No assessment can be made at this time of actual damages, or how long it will take to restart production.”

Energy prices
The October contract for benchmark US light, sweet crudes closed at $115.46/bbl Aug. 29, down 13¢ for the day on the New York Mercantile Exchange. The November contract dropped 14¢ to close at $115.85/bbl.

On the US spot market, West Texas Intermediate at Cushing, Okla., was down 13¢ to $115.96/bbl. Heating oil for September gained 1¢ to $3.19/gal on NYMEX. The September RBOB contract declined 50¢ to $2.52/gal.

The front-month October natural gas contract dropped 11¢ to $7.94/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 4¢ to $8.22/MMbtu.

The average price for the Organization of Petroleum Exporting Countries’ basket of 13 reference crudes lost 91¢ to $110.32/bbl on Sept. 1. - SOURCE: ogj.com

Oil prices rocketed above $120 on Thursday as Tropical Storm Gustav approached the Gulf of Mexico - before falling back in a see-saw session.

Having battered Haiti there are fears Gustav may disrupt oil production.

But analysts said a belief that the US government would tap the Strategic Petroleum Reserve if this happened, caused prices to fall back.

US light sweet crude ended $2.56 lower at $115.59 a barrel. London Brent crude lost $2.05 to settle at $114.17.

The US has only twice tapped its emergency reserve to respond to disruptions or supply shortage concerns. The most recent saw about 700 million barrels released after Hurricane Katrina.

And the International Energy Agency said it was prepared to tap its emergency stocks if needed.

This prospect was “taking some of the steam out of this (price)rally,” said Jim Ritterbusch, of energy consultancy Ritterbusch and Associates.

The storm is on course to hit the US coast by Monday, and there are fears it may be strengthening into a hurricane.

Inflicting damage

With 85% of US offshore oil and gas production at risk of being affected, analysts predict that oil prices will rise further until Gustav has run its course.

UK oil giant Shell has already removed about 400 staff from its offshore facilities in the Gulf of Mexico with another 270 expected to be withdrawn.

“It looks as though the hurricane is on track to inflicting damage,” said Ken Hasegawa, an analyst at broker Newedge in Tokyo.

Fellow oil analyst, Peter McGuire of Commodities Warrants Australia, predicted that the impact of Gustav could lead to oil prices returning above $130 a barrel, a price last seen in July.

“Oil markets are waiting for Gustav,” said PetroMatrix analyst Olivier Jakob.

“It is still potentially going towards the oil assets of the US Gulf but current forecasts are not showing it to be the mother of all hurricanes.” - SOURCE: BBC

Oil producers have begun to halt drilling and operations in the Gulf of Mexico, anticipating that Tropical Storm Gustav could pick up speed as it feeds on warm waters over the next several days.

BP, ConocoPhillips, Shell and Transocean, a large drilling contractor, have begun evacuating hundreds of workers from rigs and production platforms in deep waters of the Gulf.

Conoco suspended drilling of some new wells in southern Louisiana and evacuated workers from its Magnolia field, whose daily production had previously been suspended for maintenance. Valero and other refiners have put their workers on alert to prepare for a possible direct hit on operations along the Texas and Louisiana coasts.

“We’re planning for a major hurricane in the Gulf, and we are taking appropriate steps,” a ConocoPhillips spokesman, Bill Tanner, said.

Chevron and Motiva Enterprises, which supplies Shell-branded gasoline across the Gulf Coast, took steps to ensure that terminals and gasoline stations had additional supplies to anticipate any increased demand in the event of an evacuation of New Orleans or another city. Most companies maintained production levels near normal, but there were signs that they were preparing to shut down a significant number of platforms over the next several days.

Shell announced that it was shutting down a few production wells Thursday morning and that it would complete an evacuation of all its 1,300 workers in Gulf waters by Saturday. Anadarko Petroleum announced that it was also beginning a total evacuation of 600 employees and contractors from drilling and production platforms around the Gulf to be completed by Sunday.

Forecasts vary widely on how powerful the storm could become and where it will eventually hit the mainland.

Overnight, the storm moved south toward Jamaica with 70 mile-an-hour winds, meaning that oil and gas companies may have an extra day or two to prepare. It could regain hurricane strength by the end of the day.

Final landfall could come anywhere from South Texas to the Florida panhandle.

Crude and natural gas prices had been edging up over the last several days, but prices plummeted on Thursday. Crude oil declined by $2.56, to $115.59 a barrel. Natural gas prices declined 55.8 cents, to $8.05 per million B.T.U.’s.

As the Labor Day weekend approached, gasoline prices had not been seriously affected by fears that the storm could disrupt supplies. The average national price for a gallon of unleaded regular gasoline on Thursday was $3.66, down 28 cents from a month ago.

Energy analysts said oil prices were easing because traders were relieved that the International Energy Agency, the policy adviser to 27 industrialized countries, announced that it would release strategic oil stocks if the storm caused major damage to Gulf facilities.

“The announcement eased fears that we will have a supply issue over the next couple of weeks,” said Brian Youngberg, an energy analyst at Edward Jones.

The Energy Department said the government was prepared to release crude oil from the Strategic Petroleum Reserve in the event Gustav disrupted production, as it had after the 2005 hurricanes.

“D.O.E. is closely monitoring the situation and stands ready to use every available tool to ensure continuous and reliable supplies of energy,” the department said.

The drop in natural gas prices came in response to an Energy Department report of the largest increase in inventories since early July, suggesting that demand for power generation had slackened at a time when domestic production was surging.

The region produces about a quarter of domestic oil production and almost 15 percent of natural gas production. Gustav could be the first storm to directly hit a large portion of the region’s energy infrastructure since 2005. That year the hurricanes Katrina and Rita crippled more than a hundred platforms, flooded several refineries and power stations and sent oil and gas prices soaring.

Over the last three years, producers and refiners have taken action to better secure their facilities from heavy storms. More anchor lines have been installed on platforms and rigs, and equipment has been raised higher out of the water. Many of the older platforms that were not properly reinforced for storm surges were paralyzed during the 2005 hurricane season and remain out of order. New platforms that have been built since then are considered more storm resistant.

The Gulf region is relatively less important for the country’s energy supplies than it was in 2005, because of a natural gas production boom onshore and because production in several Gulf fields is in decline. Consumption of oil is down this year by about 130,000 barrels a day, or 1.5 percent over the six months, according to the Energy Department. - SOURCE: NY Times

ConocoPhillips on Wednesday confirmed a report that it plans to sell the remainder of its gas stations in the United States.

The company announced that it had agreed to sell the 600 or so stations to Pacific Convenience & Fue, a subsidiary of PetroSun Fuel, though Conoco, Phillips 66, and 76 will continue to operate under those familiar signs.

The deal is ‘’in the ballpark’’ of $800 million, said Sam Hirbod, chairman and chief executive of PetroSun and Pacific Convenience.

Part of the deal includes a long-term contract in which ConocoPhillips would provide fuel for the stations.

Houston-based ConocoPhillips began several years ago to spin off its retail stores, focusing more on exploration and refining, where much more money can be made.

It’s not alone, as larger oil companies exit the retail gas sector due to shrinking profits as they struggle to pass on the higher energy costs to Americans eager to cut back on fuel spending.

The biggest factor in the skyrocketing price of gasoline is the historic ascent of crude oil, which has surged from $45 per barrel in 2004 to around $120 this past week.

Major oil companies now own fewer than 5 percent of gas stations, with the rest owned by smaller chains and independent operators.

But all gas station owners have played a delicate balancing game in recent months, hoping to maintain a price that allows them to afford the next shipment of gasoline but not give the competition an edge. If a profit can be made, it usually comes from convenience store sales and auto repairs.

The ConocoPhillips sale must still be approved by regulators. - SOURCE: NY Times