WASHINGTON – The expectation of only short-term turbulence within the petroleum sector helped push oil prices lower Wednesday, even as Hurricane Ivan (search) 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 (search).
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.
Analysts said the loss of more than three-quarters of daily oil production in the Gulf of Mexico (search), 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.
OPEC (search)'s announcement Wednesday 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. gasoline supplies to decline by as much as 5 million barrels, or roughly 2 percent.
It's a significant amount, 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," 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 added, is if refineries and production platforms in the Gulf aren't back up and running within a few days after the storm passes.
The federal Minerals Management Service (search) reported Wednesday that about three-quarters of the 764 manned platforms and more than half of the 117 rigs currently operating in the Gulf of Mexico had been evacuated, shutting in 1.3 million barrels per day of oil production and 6 billion cubic feet of natural gas.
That is about 77 percent of total daily oil production and 49 percent of total daily natural gas production in the Gulf, which accounts for roughly a quarter of the oil and natural gas used in the U.S.
And Tuesday's shutdown of the Louisiana Offshore Oil Port (search) — the primary import facility in the United States — means an additional 1 million barrels of oil a day has come off the market.
Moreover, roughly 1 million barrels per day of refining capacity has already been shut down in Mississippi and Louisiana and analysts said that number was likely to rise by the end of the day.
ChevronTexaco Corp. (CVX) has closed a refinery in Pascagoula, Miss., that can process about 350,000 barrels a day, while the closure of two Motiva Enterprises refineries outside of Baton Rouge and New Orleans takes out an additional 450,000 barrels a day.
Valero Energy Corp. said it was bringing down its 78,000 barrels a day refinery in Krotz Springs, La., and that a refinery in St. Charles, La., would reduce output by more than 150,000 barrels a day.
"With all pipeline movements and barge supplies stopped, the shutdown was necessitated by a lack of crude oil," Valero said in a statement.
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 September 10, leaving supplies at 278.6 million barrels, or 1 percent below last year's level.
But some analysts had expected oil tanker delays related to an earlier hurricane, Frances, to skew oil-supply data to the downside and this view appeared to temper initial concerns.
The Energy Department echoed that sentiment in its weekly report, by saying that "unless storms continue to wreak havoc with Gulf Coast shipping ... all the tankers waiting to offload their crude oil will eventually make it to their respective ports and we would see high amounts of imports and a build in crude oil inventories after the storms have passed."
If anything, 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-based 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."
Moreover, it is also the time of year when refineries typically begin to shut down temporarily to conduct maintenance, before ramping up production of heating oil to meet winter demand. In other words, refiners' appetite for crude oil right now is not as strong as it could be.
Gasoline for October delivery fell 2.59 cents to $1.2142 per gallon on Nymex, while October heating oil futures declined by 2.15 cents to $1.2061 per gallon. Natural gas futures slipped 10.4 cents to $4.824 per 1,000 cubic feet.
In London, October Brent crude futures rose 12 cents to finish at $41.85 per barrel on the International Petroleum Exchange.