Crude prices rise on concerns about U.S. supply
NEW YORK – Crude oil prices climbed slightly Wednesday after the U.S. government reported drops in crude, gasoline and distillate fuel inventories – aggravating concerns about a supply shortage from the shutdown of a major pipeline in Alaska.Analysts had predicted a build in distillate inventories, and a smaller drop in gasoline inventories. The report also indicated that U.S. demand for motor gasoline and distillates, which include heating oil and diesel fuel, is still going strong.Prices also continue to be inflated by ongoing unrest in Nigeria, Africa’s biggest oil producer; the standoff between the United Nations and Iran over the No. 2 oil producer’s nuclear program, and fighting in the Middle East between Israel and Hezbollah, which further threatens to disrupt production in the region.Light, sweet crude for September delivery rose 4 cents to settle at $76.35 a barrel on the New York Mercantile Exchange, after rising as high as $77.44 – less than a dollar away from its trading record of $78.40 reached July 14.Nymex gasoline futures, however, dropped 5.41 cents to $2.1722 a gallon. Heating oil futures slipped 1.01 cent to $2.1063 a gallon after reaching 2.1535, and natural gas futures rose 49.3 cents to $7.651 per 1,000 cubic feet after hitting $7.94.Analysts attributed the afternoon pullback to traders taking profits from recent jumps. The factors contributing to high prices remain, said Fimat USA analyst Mike Fitzpatrick. “Don’t look for any kind of reversal here,” he said.As the summer driving season nears its end, traders are switching their sights toward heating oil.Though current heating oil inventories are slightly below last year’s levels, “it’s not all that spectacular, considering we had a mild winter last year,” said Phil Flynn, Alaron Trading Corp. analyst. “We’re not in trouble with supplies, but there’s not as much of a cushion, and it does raise the question of tighter supplies if we have a cold winter.”U.S. crude inventories fell 1.1 million barrels to 332.6 million barrels last week, the Energy Information Administration said Wednesday. They are still more than 4 percent above year-ago levels.Gasoline inventories fell 3.2 million barrels to 207.7 million barrels. They are less than 1 percent above last year’s levels, and in the lower half of the average range for this time of year.Distillate inventories fell 200,000 barrels to 132.4 million barrels – just below last year’s levels, but at the upper end of the average range for this time of year.Gasoline demand kept chugging along over the past four weeks, averaging 9.6 million barrels a day, or 1.8 percent above last year’s levels, the EIA said. Meanwhile, distillate demand was nearly 6 percent above the same period last year.”The bottom line here is, the demand is incredible,” Flynn said. “That probably means that a lot of businesses and consumers have adjusted somewhat to these higher prices, that the shock is getting absorbed pretty well.”Refineries were operating at 91.6 percent last week, up from 90.8 percent the previous week, the EIA said.Flynn noted that refineries switching gears to comply with upcoming new regulations for low-sulfur diesel, used in trucks and trains, probably contributed to the drop in distillate inventories.U.S. crude inventories are near five-year highs, but the Organization of Petroleum Exporting Countries’ spare capacity is tight – about 1.1 million to 1.3 million barrels a day, mostly in Saudi Arabia, the EIA estimated Tuesday.BP PLC announced late Sunday it had begun shutting down 400,000 barrels of daily oil production – about two-thirds of which belongs to ConocoPhillips and ExxonMobil – at Prudhoe Bay in Alaska. The price of oil jumped more than $2 Monday to settle at $76.98 a barrel, the highest since July 14, when the settlement was a record $77.03.Crude prices would have to rise to about $90 a barrel to beat inflation-adjusted records hit a quarter-century ago.Alaska usually supplies 800,000 barrels of oil a day to West Coast refineries, or 30 percent of all the oil processed daily in that region, the EIA said Tuesday.On Tuesday, U.S. Energy Secretary Samuel Bodman said extra supplies can replace oil lost from the shutdown of the Alaska pipeline, and that a complete shutdown might not be necessary.Fadel Gheit, an Oppenheimer & Co. analyst who attended an investors meeting with BP’s chief financial officer Byron Grote, said BP officials “don’t believe the whole line will be shut down completely,” and plan instead to build a detour line to re-route oil around the damaged sections.The six months of halted production, which BP officials had initially predicted on Monday, is a “worst-case scenario,” Gheit said.The average U.S. retail price for a gallon of regular, unleaded gasoline was $3.035 on Wednesday, down marginally from a day earlier but still close to its all-time high of $3.057 reached Sept. 5 in the wake of Hurricane Katrina.In California, Oregon and Washington, the average pump prices were up about a cent on Wednesday from a day earlier.Nigerian officials Wednesday said gunmen kidnapped four Norwegian and Ukrainian oil workers from a boat cruising miles off Nigeria’s coast. It was the latest violence targeting the petroleum industry in that country, which has been losing about 650,000 barrels a day of its usual 2.6 million barrel-a-day sweet crude oil production since the beginning of the year.The oil out of Prudhoe Bay is sour, or high sulfur, crude oil, which is easier to come by globally and harder to process than sweet, or low sulfur, crude. All types of crude oil are expected to be shipped to West Coast refineries to make up for the losses in Alaska.