Hurricane hits oil prices oil prices

24 September 2004
The US market's dominance of oil price movements was made clear in the third week of September, as Hurricane Ivan's impact on a limited number of Mexican Gulf refineries far outweighed that of OPEC's decision to raise production quotas by 1 million barrels a day (b/d) from November, taken at a ministerial meeting in Vienna on 15 September. The producers' decision moved prices by no more than a few cents. Ivan managed to lift them by some $4. Spot Brent was trading at $45.83 a barrel on 22 September, compared with $41.45 a week earlier.

Having hit the world's television screens by devastating the Caribbean, Ivan moved more quietly up to mainland America. Nevertheless, the effect on US crude and refining supplies was severe. Data released on 22 September for the week to 17 September showed refinery inputs down by 1.3 million barrels a day (b/d) to 14.7 million b/d, as the weather forced refinery shutdowns. Crude imports fell by 1.5 million b/d to 8.4 million b/d as tankers were unable to dock. The result was a stock draw of 9.1 million barrels of crude and 2.7 million barrels of gasoline over the course of the week.

At a time when the market is already tight, the effect of such data is magnified. 'Crude imports will rebound, while restoring balance in oil products will take far longer,' says Paul Horsnell, analyst at Barclays Capital. 'Just as the seasonal build in heating oil inventories should have been reaching a crescendo and finished off, it has been truncated.'

OPEC ministers in Vienna cited soaring Chinese demand among the key reasons for the persistence of high prices and the ever-tightening balance between supply and demand. Beijing gave them ammunition on 21 September by releasing customs data showing that oil imports had risen by 37 per cent year on year. To make matters worse, a key crude supplier, the beleaguered Russian giant Yukos, announced that 100,000 b/d of exports to China would cease for the remainder of the year because the company was unable to meet shipment costs. Yukos is facing government demands for billions of dollars in tax arrears.

Amid the horror of the videotaped beheading of Western hostages in Iraq, a small piece of good news emerged from the country's oil industry. A three-day, sabotage-induced fire on the northern Kirkuk-Ceyhan oil export pipeline was extinguished on 16 September and the flow is due to resume imminently.

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