Oil Above $67 on Gas Supply Concerns
(06-14) 08:20 PDT NEW YORK, (AP) —
Domestic crude oil swept above $67 a barrel Thursday on continuing concerns the refining industry is not producing enough gasoline to meet summer driving demand.
That worry, which drove gas prices to record levels last month, was exacerbated by Wednesday’s government report that showed refinery utilization fell last week, and that gasoline inventories did not grow.
“This is no longer an aberration, it is an industry-wide disaster,” wrote Peter Beutel, an analyst at Cameron Hanover, in a research note.
Light, sweet crude for July delivery rose 91 cents to $67.17 a barrel on the New York Mercantile Exchange. Gasoline futures for July added 5.14 cents to $2.2067, also on the Nymex. Both contracts also gained Wednesday, after the Energy Department’s report was released.
Retail gas prices, which often trail the futures market, fell again. The average national price of a gallon of gas fell 1.1 cents overnight to $3.043, according to AAA and the Oil Price Information Service. Prices peaked at $3.227 a gallon in late May.
In other Nymex trading, heating oil futures rose 3.25 cents to $1.9945 a gallon while natural gas prices gained 13.9 cents to $7.747 per 1,000 cubic feet.
The July Brent crude contract rose 90 cents to $70.84 on the ICE Futures exchange in London.
“People are concerned that gasoline inventories remain low,” said Michael Lynch, president of Strategic Energy and Economic Research Inc., in Winchester, Mass.
Refinery utilization, which had been expected to grow by 0.8 percent, fell 0.4 percent to 89.2 percent, the second straight weekly decline, according to the Energy Department’s Energy Information Administration. Most analysts say refineries should be using 94 percent to 95 percent of their capacity at this time of year.
“There were general expectations that gasoline inventories would continue to build … but the market didn’t see it,” said Victor Shum, an energy analyst with Purvin & Gertz Inc. in Singapore.
Gas inventories were unchanged at 201.5 million barrels for the week ended June 8, the EIA report said. Analysts surveyed by Dow Jones Newswires expected inventories to rise by 2 million barrels.
The refining industry is still struggling to recover from the effects of Hurricanes Katrina and Rita two years ago, analysts said.
“It suggests that a number of refineries were severely affected by the big hurricanes, and that no one told anybody,” Beutel wrote. “The storms cast a stronger shadow than envisioned.”
Based on the fact that utilization levels are 6 percent below historic averages, the EIA numbers suggest that 5 percent to 6 percent of refinery capacity may have been more damaged than anyone suspected, Beutel wrote.
But Lynch thinks the issue is not damage from the hurricanes, but deferred maintenance. When the storms hit the Gulf Coast, refiners elsewhere had to pick up the slack. Many put off planned maintenance until this year.
“Refineries are having a hard time coming back,” said Lynch.
Adding to their woes are environmental regulations requiring refiners to remove sulfur from their products. To do this, refiners must use more equipment.
“It seems like the added complexity is causing problems,” Lynch said.
Reports Thursday that two Corpus Christi, Texas, refineries were coming back online did little to assuage the market’s general sentiment that refineries are behind, Lynch said.
Man Energy analyst Edward Meir noted one overlooked positive in the EIA report: Gasoline production increased slightly, even though refinery utilization fell. That suggests, Meir wrote, that while refineries are using less of their overall capacity, more of the capacity that is in use is being shifted from making other products to producing gasoline.
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Associated Press Writers Pablo Gorondi, in Budapest, and Derrick Ho, in Singapore, contributed to this report.
