NEW YORK – Crude oil prices eased Tuesday after a robust rally a day earlier, but markets remained concerned over possible shortages in oil products as refineries continued to assess the damage caused by Hurricane Rita (search).
Light sweet crude for November fell 75 cents to settle at $65.07 a barrel on the New York Mercantile Exchange (search). It had risen $1.63 Monday.
On London's International Petroleum Exchange, November Brent futures fell 96 cents to $676 a barrel.
"The feeling is there's plenty of crude supply in the market, even though we've lost some imports and production," said Tom Bentz, analyst at BNP Paribas Commodity Futures in New York. "But it's kind of a delicate balance right now. It's hard to say where this market is going."
About a dozen refineries in Texas and Louisiana remained shut down Tuesday because of Hurricanes Rita and Katrina. Gasoline and distillates, such as heating oil, require refining, and prices for these products rose.
Futures for gasoline extended Monday's gains, rising more than 3 cents to settle at $2.1664 a gallon. Heating oil rose a penny to $2.0686 a gallon. Natural gas rose more than 21 cents to $12.656 per million British thermal units.
Drivers are seeing higher prices at the pump, and analysts say that won't change anytime soon. At an average of $2.81, the U.S. retail price of a gallon of gasoline is more than 20 cents higher than a month ago, before Hurricane Katrina struck the Gulf coast.
"People are recognizing that gas supplies are going to be tight for a while," said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York.
Refineries begin to shift production from gasoline to heating oil at this time year. But analysts said oil companies will be under pressure to produce enough gasoline to prevent shortages and keep prices from spiking much above $3 a gallon. That could push production of heating oil back later than usual, they said.
"The heating oil market seems to be fairly well supplied, but if refineries are down for enough time, that surplus could diminish," Bentz said.
The loss of natural gas is potentially even more worrisome, analysts said, because disruptions to crude output can be offset by barrels from the rest of the world, plus the government's emergency reserve. There is no such safety valve for natural gas, and the country's ability to import liquefied natural gas is limited.
More than 78 percent of daily natural gas output remains blocked in the Gulf as of Tuesday, the U.S. Minerals Management Service (search) said. The region is the country's main source for the product.
Annual output of oil and gasoline output has declined by 6.6 percent and 4.7 percent, respectively.
The U.S. Department of Energy on Wednesday will release its weekly report on oil supply. Most analysts expect drops in inventories of crude, gasoline and distillates.
Saudi Arabia's Oil Minister Ali Naimi said Tuesday that Hurricane Rita and Hurricane Katrina had exposed the petroleum's industry's fragility, but reiterated that there was enough spare crude to meet demand and that the problem instead was the lack of refineries.
Naimi said that OPEC had no takers for its offer of an extra 2 million barrels a day, while the International Energy Agency had offered 60 million barrels after Katrina struck and only 11 million were taken. Much of the rejected oil was heavy, sour crude, which is more difficult to refine.
Early estimates were that Hurricane Rita will cost U.S. refiners about 800,000 barrels a day in capacity, on top of a drop about 900,000 barrels a day because of Hurricane Katrina. Market-watcher Energyintel put the number of lost barrels from Rita even higher, at 1.1 million barrels a day.