Oil prices fell below $99 a barrel Sunday

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http://money.cnn.com/2008/09/14/mark...ex.htm?cnn=yes


NEW YORK (CNNMoney.com) -- Oil prices fell below $99 a barrel Sunday in a special early trading session as traders bet that Hurricane Ike did not cause significant damage to refineries.
"The market is expressing some relief," said Andrew Lebow, a broker at MF Global in New York. "We were worried on Friday that the storm surge would flood the refineries, but right now it looks like that was not the case."
"The storm surge was not 20 feet, it was more like 12 or 13 feet," said Lebow. While preliminary reports showed that damage was not as bad as originally feared, the market was still waiting for more information from the region, he added.
Prices were trading down $2.30 to $98.88 a barrel in electronic trading, which normally starts at 6 p.m. ET. On Friday, oil settled at $101.18 a barrel on the New York Mercantile Exchange.
Oil prices have fallen nearly $50 off the record high price of $147.27 a barrel, set July 11. As the U.S. and global economies have slowed, demand for energy has fallen off.
Damage to refineries: Ike has weakened to a tropical depression, according to the National Hurricane Center, and was blowing over northern Arkansas Sunday morning. The center predicts "water levels will gradually subside along the upper Texas and Southwestern Louisiana Coast today."
Refineries are particularly vulnerable to flooding. After Hurricane Katrina, refineries were shut down for between 6 to 9 months due to flooding. Refineries process crude oil into usable products, like gasoline and home heating oil.
The Gulf Coast region houses 42% of total U.S. refining capacity. Texas, where Ike first hit as a Category 2 hurricane, is home to 26 refineries, or more than 25% of the nation's total refining capacity. The 26 refineries can process nearly 4.8 million barrels of crude per day, according to the Department of Energy. Most of Texas' refineries are on the Gulf Coast ports of Houston, Port Arthur and Corpus Christi.
The eye of the hurricane passed directly over the Exxon Mobil (XOM, Fortune 500) refinery in Baytown, Texas, which is the largest refinery in North America and has a daily capacity of 567,000 barrels. The Baytown refinery and 13 others in the Texas Gulf region remained shut down on Saturday.
As of Saturday at noon ET, 97.5% of crude oil production and 94.5% of natural gas production in the Gulf of Mexico was shuttered, according to the Department of Energy.
Hurricane Ike resulted in a decrease of 3.8 million barrels per day of refinery capacity, according to the Department of Energy. If refineries remain shuttered and process less crude than usual, then there is automatically less demand for crude, said Lebow. Even if the damage to refineries is not as bad as expected, the refineries still have been turned off and are not running crude. Less demand in the short-term worked to hold oil prices lower.
Meanwhile, gas prices have jumped since Ike hit. The average price of regular unleaded gasoline increased 6.2 cents to $3.795 and followed a 5.8 cent rise on Saturday, according to a survey released by the motorist group AAA.
Damage reports: It was still too early to know exactly how much damage was done to oil drilling rigs in the Gulf, but the Minerals Management Service reported on Saturday that two drilling rigs were adrift in the Gulf of Mexico, loosened from their mooring by the storm.
MMS, the government agency that tracks offshore operations, was monitoring the movement of the detached rigs in collaboration with the U.S. Coast Guard and the oil industry. Lars Herbst, the regional director of MMS for the Gulf of Mexico Region, said in a statement that the rigs had "been relatively stationary for several hours."
As the weather in the Gulf clears, the MMS staff, the U.S. Coast Guard and the oil and gas industry will begin flying over production infrastructure to assess damage, according to the statement. The fly-overs will allow preliminary damage reports.
MMS estimated that 611 of the 717 manned production platforms - about 85.2 % - remained evacuated in the wake of Hurricane Gustav earlier this month and in after Hurricane Ike.
SPR: To counter the disruption caused by Gustav and Ike, the government in the past week has granted 939,000 barrels of oil loans from the Strategic Petroleum Reserve. The SPR is a 700 million barrel government-controlled reserve of crude.
On Sunday, the Energy Department announced that it has agreed to loan 200,000 barrels of oil from the SPR to ConocoPhillips Co. (COP, Fortune 500) The government will loan 109,000 barrels to a Placid Oil refinery along a Shell (RDS.A) pipeline in Louisiana. That followed a 130,000 barrel loan to Placid Oil on Thursday.
Also on Thursday, the government granted 250,000 barrels from the SPR to Marathon Petroleum Co., on top of 250,000 barrels granted on Sept. 8.
Sluggish demand: Crude prices have come off their highs in the past two months as a sluggish global economy cut sharply into demand for pricey energy.
The dour backdrop of sinking demand for oil has put consistent and strong pressure on oil prices.
In addition, the dollar has been climbing against other currencies, weighing on the price of oil. Crude oil is traded in U.S. currency around the globe, and so a stronger dollar means that oil prices go down.
First Published: September 14, 2008: 10:18 AM EDT

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Well I have been told for how long this would never happen again?
Never say never.

 

Loans from the SPR? How long do we think the roughly 400,000 barrels will last, and how long will we have to wait for re-fill? Somehow, I think the SPR is going to go the way of the dodo.

 

Around here, gas has gone up 14 cents in the past 5 days. I guess they haven't gotten the word yet about barrel price.

 

Light, sweet crude for October delivery fell $4.05, or 4 percent, to $97.20 a barrel on the New York Mercantile Exchange, after earlier dropping to $94.13, the lowest level since Feb. 14. A close at that level would be oil's first settlement under $100 since March 4.
Crude has fallen about $50 — or 35 percent — from its all-time trading record of $147.27 reached July 11 as a global economic slowdown continues to weigh on demand for energy.
The sell-off in oil began Sunday and accelerated Monday as traders digested a day of dramatic upheaval on Wall Street: Lehman Brothers Holdings Inc., a 158-year-old investment bank, filed for bankruptcy after failing to find a buyer and Merrill Lynch & Co. agreed to be bought out by Bank of America Corp.

 

I guess I can see why the price dropped so dramatically. With the shut down refineries, the supply of crude had to go up, way up, since the US uses so much of it. On the consumption side, the pipelines dried up, shortening the supplies of refined product, hence the price increase at the pump. Until the refined product refills the pipelines, prices at the pump will stay high. (And with the rules and regulations in place to prevent scalping, no retailer in his right mind will put the price up until the demand and supply equalize, so look for more dry tanks at your local purveyor's shop.) So methinks, anyway.