USA taps strategic reserves: oil prices dip

01-Sep-05

A decision to tap U.S. strategic reserves to help companies hurt by Hurricane Katrina have triggered a dip in crude oil prices. October's front-month benchmark crude on the New York Mercantile Exchange fell to US$68.60 a barrel in Singapore. While the details are being worked out about how much oil would be loaned from the U.S. Strategic Petroleum Reserve, and the refiners who will receive it, European nations began considering the release of their own government-controlled stockpiles of gasoline and heating oil. Data released of petroleum stocks in USA on Wednesday, was largely ignored by traders. The report indicated that available gasoline supplies fell for a ninth straight week, dropping by 508,000 barrels to 194.4 million while crude stocks declined by 1.5 million barrels to 321.4 million As the consequences and damages unfold, this could well be the biggest oil-supply shock since the 1970s. Gasoline futures jumped 3% on worries of damage to refineries in the Gulf of Mexico by Katrina, coupled with the ceiling introduced by wholesale gasoline suppliers on the amount of fuel they sell to retailers in certain markets, to ensure retailers do not take delivery of more fuel than they actually need. Unlike Hurricane Ivan, that majorly affected oil facilities last September and had a lasting impact on crude oil production in the Gulf of Mexico, Hurricane Katrina may have a more lasting impact on refinery production and the distribution system. ExxonMobil, Total, Murphy Oil Corp., Dominion Resources, Kerr McGee Corp. and Anadarko have indicated that their offshore facilities appeared to be intact. BP PLC said none of its refineries were hit by the hurricane, but its fuel production has been disrupted by crude oil supply, and port and pipeline availability. The loss of critical gasoline flows from the U.S. Gulf Coast to the Northeast caused by Katrina, will stress markets over the next few weeks. Even before Katrina, oil producers and refiners had been struggling to meet rising demand, particularly in the U.S. and China. Energy markets have been on edge for about two years because excess oil production capacity worldwide is only about 1.5 million bpd, or less than 2% of demand.