NEW YORK – Oil prices fell on Wednesday as Hurricane Ivan, one of the strongest storms on record, cut the demand for crude oil by shutting nearly 13 per cent of US refining capacity.
Refiners fully shut eight refineries in Louisiana and Texas and partially shut four more as they prepared for the storm to hit land early Thursday. The effect of the closed refineries outbalanced US Gulf oil production shut in by Ivan and weekly government data that showed crude stockpiles last week fell to their lowest level in six months as Ivan delayed shipments.
US light crude settled 81 cents lower at US$43.58 per barrel on the New York Mercantile Exchange, after touching a two-week peak earlier in the day of US$45.30 as news of the tighter crude supply picture overrode Opec’s attempt to calm the market with a 4 per cent hike in its official output quota.
Brent crude settled 12 cents stronger at US$41.85 on the International Petroleum Exchange in London.
“The market seems to be following standard hurricane drill in which you price in gains several days in advance and then prices ease when the storm hits,” said Tim Evans, analyst at IFR Energy Services.
The government said the effects of hurricanes on US crude oil supplies can be short-lived. The US Energy Information Administration said that in 2002, when Tropical Storm Isadore and Hurricane Lili hit the gulf in late September, oil inventories plummeted by 14.7 million barrels over two weeks. But in the next two weeks inventories rose by 15.7 million barrels.
Earlier on Wednesday, EIA said commercial crude inventories fell 7.1 million barrels to 278.6 million barrels in the week to Sept. 10, taking crude stocks to their lowest level since late February.
“The focus is on the crude stocks,” said Jim Ritterbusch, president of Ritterbusch and Associates.
Analysts said delays due to recent hurricanes could have contributed to lower crude imports, which fell about 800,000 barrels per day to just under 10 million bpd.
But with Hurricane Ivan sweeping through the Gulf of Mexico, where 25 per cent of US oil and gas is produced, more disruptions looked likely to come through into next weeks inventory figures.
So far, oil companies have shut in about 2.5 million barrels of crude in the gulf, the US Minerals Management Service said on Wednesday.
The Organisation of the Petroleum Exporting Countries agreed at its meeting in Vienna to raise formal output limits by 1 million barrels per day, or 4 per cent, to 27 million bpd. The new supply quotas in will be effective Nov. 1.
Opec will meet again on December 10 in Cairo, ministers said. The cartel made no change to its US$22-US$28 price target.
Wednesdays quota hike is designed to underline Opecs intent to bring crude prices back below US$40 a barrel.
Oil prices have remained stubbornly high despite Opec lifting supplies this summer to a 25-year high to meet strong world demand growth led by Chinas booming economy.
Saudi Oil Minister Ali al-Naimi reiterated that current prices were too high, but said there was no sign that high prices were hurting demand.
However, Wednesdays deal will do little to change real supplies. Opec is already pumping some 2 million bpd over existing limits of 26 million bpd.
“We would see this as more of a housekeeping exercise, rather than being of any immediate significance for prices,” wrote analysts at Barclays Capital.