1. Numerous crises
On Monday oil prices fell below $99 on the perception that hurricane Ike caused minimal damage to production and refining facilities in the Gulf. The markets ignored reports that 99 percent of Gulf production was shut in and electrical outages were so wide spread it would take a week or more to restore production. Many of the key personnel necessary for production and refining were told not to return home to the coast until there was food, water, and electricity.
In contrast to crude, spot gasoline prices rose rapidly across the South as numerous gasoline stations ran short of supplies. Nearly two weeks of production and refining outages have reduced the flow of refined products to customers across the South by 30 or 40 percent.
Rescue activities in the Gulf were still going on when a series of financial storms broke over Wall Street. Despite an announcement by OPEC that production was going to be cut by 520,000 b/d, oil plunged to $92 a barrel on perceptions that the world’s economic situation was getting much worse. At one point oil traded as low as $90 a barrel.
Early on Wednesday oil rebounded by $3 a barrel on news that the US government was not going to let insurance giant AIG fail. The weekly stocks report showed US crude inventory down by 6.3 million barrels, double what was expected, and US gasoline stocks falling by 3.8 million to the lowest level on record.
Despite the US bailout of AIG, and contrary to expectations, the stock market fell further on Wednesday on the concern that the world financial situation was deteriorating beyond the ability of the governments to do anything about it. This time, however, investors jumped onto commodities as a safe haven so that oil closed Wednesday at 96.69, up nearly $5 for the day.
The Department of Energy reports that 95 percent of Gulf oil production and 3 million b/d of refining capacity are still shut down, making it likely that gasoline shortages will persist across the South for another week or two. Since Gulf refineries first closed down before Hurricane Gustav, close to 32 million barrels of petroleum products have not been processed. This includes nearly 15 million barrels of gasoline and over 10 million barrels of distillates.
2. Nigeria
The situation in Nigeria deteriorated markedly this week when the Movement for the Emancipation of the Niger Delta declared an “oil war” and began widespread attacks against oil facilities and government forces. So far an additional 600,000 b/d of oil production has been shut down by the new attacks, lowering Nigeria’s output to 1.5 million b/d from 2.1 million b/d. Some oil industry officials now fear Nigerian oil production could fall to zero.
