Bloomberg News

Oil Rises as Isaac Shuts Output; Gasoline Gains on Refinery Fire

August 27, 2012

Oil climbed the most in a week and gasoline rose to the highest in almost four months as Tropical Storm Isaac strengthened, crimping output in the Gulf of Mexico, and a fire in Venezuela shut part of the world’s No. 2 refinery.

West Texas Intermediate futures climbed as much as 1.6 percent in New York and gasoline surged 4.1 percent. The storm is expected to become a hurricane in “a day or so” as it approaches the northern Gulf coast, the U.S. National Hurricane Center said today. Isaac has shut about 24 percent of U.S. oil production and 8.2 percent of natural-gas output from the Gulf, the Bureau of Safety and Environmental Enforcement said yesterday. Firefighters in Venezuela are working to quench fires at two storage tanks after a gas explosion at the Amuay plant, part of the Paraguana complex, killed at least 39 people.

“Oil is higher as the tropical storm is expected to shut in oil in the Gulf of Mexico almost entirely in coming days,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt. “The market is reacting to this temporary supply risk, which will lead to a drop in U.S. inventories. The temporary shutdown of refineries in the Gulf will also lower gasoline supplies.”

Oil for October delivery increased as much as $1.57 to $97.72 a barrel in electronic trading on the New York Mercantile Exchange and was at $97.28 at 1:37 p.m. London time. Front-month prices gained 0.2 percent last week, closing at $96.15 on Aug. 24, and are down 1.4 percent this year.

Brent oil for October settlement rose 38 cents, or 0.3 percent, to $113.97 a barrel on the London-based ICE Futures Europe exchange. The European benchmark grade’s premium to WTI was at $16.60, compared with $17.44 on Aug. 24.

Stalled Rally

Oil’s rally in New York may stall around $98.39 a barrel along a downward-sloping trend line going back to the 2012 intraday high of March 1, according to data compiled by Bloomberg. Sell orders tend to be clustered near chart- resistance levels. Crude’s 14-day relative strength index is also approaching 70, a reading that signals futures have risen too quickly for further gains to be sustainable.

Energy companies including BP Plc (BP/), Anadarko Petroleum Corp. (APC:US) and ConocoPhillips (COP:US) said yesterday that they evacuated personnel as Isaac approached. The Gulf is home to 23 percent of U.S. oil production, 7 percent of natural-gas output and 44 percent of refining capacity, according to the U.S. Energy Department.

The Louisiana Offshore Oil Port, the single largest entry point for crude coming into the U.S., plans to suspend offloading of oil tankers, Barb Hestermann, a spokeswoman for the port, said Aug. 25. Between 900,000 and 1 million barrels of oil a day is offloaded at the LOOP, she said.

Hurricane Warning

Isaac is about 180 miles (290 kilometers) southwest of Fort Myers, Florida, with top sustained winds of 65 miles per hour, the hurricane center said in an advisory at 5 a.m. today in Miami. It’s moving west-northwest at about 14 mph and is expected to become a hurricane in “a day or so” as it approaches the northern Gulf Coast. A hurricane warning is in effect from east of Morgan City, Louisiana, through Mississippi and Alabama to Destin, Florida. The center issued a hurricane watch from Intracoastal City, Lousiana, to Morgan City.

In Venezuela, the Amuay plant, with capacity to process 645,000 barrels of oil a day, was halted as a result of the explosion on Aug. 25, according to Oil Minister Rafael Ramirez. The Paraguana complex has a capacity of about 950,000 barrels a day, the world’s second-biggest after Reliance Industries Ltd. (RIL)’s Jamnagar refinery in India, data compiled by Bloomberg show.

Processing units at the facility about 240 miles west of Caracas sustained no structural damage, and production will resume within two days after the fires are out, Ramirez said.

Price Squeeze

The refinery halt in Venezuela should lead to “a temporary squeeze on prices,” said Jonathan Barratt, chief executive officer of Barratt’s Bulletin, a commodity newsletter in Sydney, who forecasts WTI has resistance at $98.50 a barrel.

The fire highlights the risk to supplies of oil products from large, ageing plants and may lead to more exports from Asia to the U.S., according to Goldman Sachs Group Inc. (GS:US)

Major refinery fires in other parts of the world caused months of delays before full operations resumed, Nilesh Banerjee, a Mumbai-based analyst at Goldman Sachs Group Inc., said in an e-mailed note. The Venezuelan plant exports 360,000 barrels a day of gasoline to the eastern U.S., Banerjee said.

Arbitrage Trades

“In a scenario where Amuay’s exports decline, we could see arbitrage trade open up for gasoline cargoes from Asia to move towards the U.S.,” Banerjee said in the report. “We believe this would impact Asian gasoline/naphtha cracks. Moreover, the U.S. distillate market remains relatively tight, and any demand from Venezuela could impact regional dynamics.”

Gasoline for September delivery rose as much as 12.7 cents to $3.205 a gallon on the New York Mercantile Exchange, the highest level since April 30.

The International Energy Agency, adviser to 28 energy- consuming nations, said in a statement on Aug. 24 that conditions that would warrant a release of strategic stocks “are not yet present.” The Obama administration is monitoring oil markets and a release from the nation’s Strategic Petroleum Reserve remains an option if prices rise or supply is disrupted, Josh Earnest, a White House spokesman, said Aug. 17.

Hedge funds raised bullish bets on oil to a three-month high in the week ended Aug. 27, according to the Commodity Futures Trading Commission’s Commitments of Traders report on Aug. 24. Money managers increased net-long positions, or wagers on rising prices, by 18 percent to the highest level since the week ended May 1, the report showed.

To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Ayesha Daya in Dubai adaya1@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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Companies Mentioned

  • APC
    (Anadarko Petroleum Corp)
    • $91.27 USD
    • -0.90
    • -0.99%
  • COP
    (ConocoPhillips)
    • $69.81 USD
    • -0.19
    • -0.27%
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