Friday, August 24, 2012

Impact Tropical Storm Isaac on crude oil prices

Impact Tropical Storm Isaac on crude oil prices : Oil rose for a fourth week as Tropical Storm Isaac strengthened in the Caribbean Sea on a path that may threaten crude production in the Gulf of Mexico.

Crude for October delivery slid 12 cents to settle at $96.15 a barrel on the New York Mercantile Exchange. Prices rose 14 cents this week. Oil has rallied 24 percent since this year’s closing low of $77.69 reached on June 28.

Brent oil for October settlement fell $1.42, or 1.2 percent, to end the session at $113.59 a barrel on the London- based ICE Futures Europe exchange.

Crude oil futures gained in U.S. trading on Friday after forecast models predicted that Tropical Storm Isaac would head for the Gulf of Mexico, where many oil rigs operate. Concerns that Europe will struggle to firewall its debt crisis tempered crude's gains.

The storm, blowing winds faster than 60 miles an hour as of Friday afternoon, is forecast to strengthen by the time it reaches the Gulf early Monday and seems headed toward the Alabama coast, passing near the heart of energy production in the Gulf and threatening refineries in Louisiana and Mississippi. BP PLC (BP, BP.LN) said Friday it is pulling all personnel from its large Thunder Horse offshore platform, interrupting production there, and evacuating nonessential staff from a host of other nearby facilities.

Energy Markets See Mild Impact From Isaac as Storm Nears Gulf
Analysts expect other producers to also evacuate facilities and disrupt production, a move that just a few years ago could have triggered major spikes in energy prices at the height of driving and air-conditioning season. But thanks to an unprecedented boom in shale natural-gas production onshore, Gulf natural-gas production is just 6% of the total produced in the continental U.S., down from 17% when hurricanes Katrina and Rita wrought havoc with energy infrastructure there in 2005.

A similar surge in onshore U.S. oil production has lowered the Gulf's share of lower-48 state production to one-fifth, from 29% in 2005, according to analysts with Simmons & Co. International.

"If something is taken out, that's a big event, but it doesn't have as much weight as it used to," said Rich Ilczyszyn, chief market strategist at oil-and-gas trading firm "Five years ago, all the shorts would get on the market immediately, and prices would skyrocket. Now, it would send prices up a small percentage."

Isaac comes as tightening oil inventories in the U.S. have pushed prices to their highest level since early May in recent days, and heightened Middle East tensions continue supporting high prices. Crude-oil futures in New York hit an intraday session high--$97.17 a barrel, up 90 cents--shortly after news of the Thunder Horse disruption came out, but they later dropped to $96.75 a barrel. Natural-gas futures were down 1.75% at $2.75 per million British thermal units.

Eliecer Palacios, energy-sector specialist with the Maxim Group, said energy markets Friday were more interested in general macroeconomic news, but a bigger impact from Isaac could be felt Monday, as the storm's trajectory becomes clearer to traders and a better picture emerges of how much production will be shut in.

In September 2005, before Hurricane Rita formed in the Gulf, U.S. crude-oil futures traded around $63 a barrel; by the time the storm approached its eventual landing at the Texas-Louisiana border, prices briefly topped $68 per barrel. A repeat is unlikely. "You won't see oil shoot up $5," Mr. Palacios said.

The storm's impact on gasoline prices would depend on how much damage, if any, it inflicts on refineries or distribution systems, said Avery Ash, manager of regulatory affairs at the automobile association AAA. Valero Energy Corp. (VLO), Chevron, Exxon Mobil Corp. (XOM) and others run about 3.2 million barrels a day of combined capacity in Louisiana and Mississippi, about 19% of the U.S. total.

"We've seen that spot markets have kept an eye on storm conditions, but it's too early [to predict] where prices may go," Mr. Ash said.

Reformulated gasoline blendstock futures in New York settled at $3.07 a gallon Friday, down 1.44%.

BP's Thunder Horse facility is the company's largest deep-water producing platform, with the capacity to process 250,000 barrels of oil a day and 200 million cubic feet a day of natural gas. The platform's quarters can house 298 people, according to BP's website.

On Friday morning, the center of Isaac was south of Hispaniola, and the storm was expected to strengthen before it reached the coast of the island later in the day. It is expected to move near or over eastern and central Cuba on Saturday and Sunday.

The storm could possibly weaken as it crawls directly over Cuba, according to National Hurricane Center spokesman Dennis Feltgen. "A lot will be determined by how much time it will spend over land, which, of course, would disrupt it," Mr. Feltgen said.

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