Oil Companies in Ivan’s Path Fare Better Than Feared

As Hurricane Ivan bore down on the southeast coast of the United States this week, Wall Street energy traders feared the worst.

What if the storm damaged or destroyed oil pipelines or offshore drilling platforms?

The price of crude oil spiked as the hurricane roared through the Gulf of Mexico toward the oil-producing states of Louisiana and Texas.

While it may be too early to make a full assessment, it appears that the traders’ fears were unrealized.

Crude oil futures for October delivery on the New York Mercantile Exchange fell on Wednesday and again at the start of yesterday’s trading session.

Light Impact

“It’s down today because it doesn’t look like the impact on the producing region was that bad,” said James L. Williams, an energy analyst with WTRG Economics of London, Arkansas.

Later yesterday, however, prices rose and finished 30 cents a barrel higher to settle at $43.88. Possible reasons for the increase, according to the Associated Press, included a pipeline explosion in northern Iraq, an explosion on an oil tanker unloading in northeastern Siberia, and fears about another approaching hurricane, Jeanne, that struck the Dominican Republic yesterday.

Anticipating Ivan, energy companies evacuated 575 platforms and 69 rigs in the Gulf of Mexico this week, cutting the normal oil production by 78 percent, according to the U.S. Department of Interior’s Minerals Management Service.

About 30 percent of U.S.-produced oil comes from the Gulf of Mexico, according to the Minerals Management Service. About 23 percent of domestically produced natural gas comes from that region as well.

Damage Being Assessed

The companies are now assessing the damage, and some of the early reports are positive.

Shell Chemical was to restart operations at its Norco, Louisiana, refinery by this morning, the Houston Chronicle reported on its Web site yesterday. It was shut down on Tuesday.

ConocoPhillips’ refinery in Belle Chasse, Louisiana, was undamaged, the company said, and is expected to resume operations soon, according to the newspaper report.

With production severely curtailed, and tankers that were supposed to deliver oil instead staying clear of the hurricane, oil inventories are unusually low.

The Energy Department said that the delayed tankers will eventually make it to port and increase inventories after the storms pass.

The federal agency added that it wouldn’t be surprising to see significant inventory increases over the next couple of months because refiners are expected to come offline soon to perform routine maintenance. Those refiners won’t be using oil while they are shut down, and demand for gasoline typically falls after Labor Day.

Oil Overpriced

Crude oil has fallen about US$6 a barrel from its record high trading price of $49.40 a barrel, reached on August 20. Still, prices are about 56 percent higher than they were a year ago.

Williams, the energy analyst, said that common measures of the oil markets — inventory, supply and demand — indicate that oil is now about $10 a barrel more expensive than it should be.

Traders are worried about a possible supply disruption, he said. The world’s oil producers are already making almost as much oil as they can.

That means that if something goes wrong in one of the oil-producing countries — Venezuela, Nigeria, Iraq or any of the others — it could limit supplies.

“The lack of excess capacity has everyone running scared, and that’s bid up the price,” he said.

Extra Production

Two years ago, oil-exporting countries could produce an extra 6 million barrels a day if there was some sort of supply disruption, Williams said.

Today, just 500,000 to 1 million barrels of additional oil can be produced, he said.

The extra capacity has been sucked up, in part, by a big increase in demand by developing countries such as China and India, he said.

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