U.S. Oil and Natural Gas Market Impacts

Prices NYMEX Futures Prices (for October delivery) 9/2/2008 8/29/2008 change Week Ago 8/26/2008 Year Ago 9/4/2007   WTI Crude Oil ($/Bbl) 109.71 115.46 -5.75 116.27 75.08   Gasoline RBOB* (c/gal) 273.37 285.42 -12.05 285.97 199.10   Heating Oil (c/gal) 307.36 319.19 -11.83 323.44 207.95   Natural Gas ($/MMBtu) 7.26 7.94 -0.68 8.39 5.63   OPEC Basket ($Bbl) NA 111.23 NA 110.51 70.88 *RBOB = Reformulated Blendstock for Oxygenate Blending (RBOB), the base gasoline that needs to be blended with some type of oxygenate, now usually ethanol, to be turned into finished reformulated gasoline (RFG). Ethanol is not blended into the gasoline mixture until just before the gasoline is shipped to the retail stations. Petroleum As of 12:30 pm EDT (11:30 am CDT), September 2, the Minerals Management Service was reporting that about 1.3 million barrels per day (or approximately 100 percent) of the federal portion of the Gulf of Mexico’s crude oil production was shut-in. As of 3:00 pm EDT (2:00 pm CDT), September 2, the Department of Energy reported that 13 refineries in the Gulf of Mexico region were shutdown, representing 2.5 million barrels per day of capacity, while another 10 refineries had reduced their crude oil throughput.  The 13 refineries that were shut down represent over 1.0 million barrels per day of gasoline output and about 700,000 barrels per day of distillate fuel output, based on recent historical data.  Even without damage, shut-down refineries can take a week or more to return to normal operations.  Additionally, the Department of Energy was reporting that the Capline and LoCap crude oil pipelines, the Centennial product pipeline, and the Louisiana Offshore Oil Port were all temporarily shut down.  The Colonial and Plantation product pipelines were running at reduced rates. However, despite the shut-in of crude oil production and refinery outages, futures prices on the New York Mercantile Exchange (NYMEX) were much lower at the close of trading on September 2, compared to the close on Friday, August 29.  Prices continued the fall that began on Monday during electronic trading, with crude oil for October delivery down $5.75 per barrel, and gasoline (RBOB) and heating oil down about 12 cents per gallon each at the close of trading on Tuesday compared to last Friday.  Market expectations that shut-in crude oil production and refinery outages were going to be temporary is pushing prices down, removing any pre-hurricane price increases.  Over the next few days, companies will be completing their damage assessments to petroleum infrastructure.  As long as companies report no long-term damage, crude oil prices are not likely to spike significantly higher due to Hurricane Gustav. However, temporary local product supply problems could occur before refinery production and pipeline flows return to normal, which could result in increased retail prices in some areas. Natural Gas As of 12:30 pm EDT (11:30 am CDT), September 2, the Minerals Management Service was reporting that nearly 7.1 billion cubic feet per day (or well over 90 percent) of the federal portion of the Gulf of Mexico’s natural gas production was shut-in.  As of 1:30 pm EDT (12:30 pm CDT), September 2, the Department of Energy is reporting that there have been no reports of damage to pipeline or production infrastructure.  As of noon EDT (11:00 am CDT), September 2, the Sabine pipeline system was being assessed, but the force majeure of the Sabine pipeline has not been lifted, causing all pipelines connected to the system to be shut-in.  This includes operations at Henry Hub, the largest centralized point for spot and futures natural gas trading in the United States.  Many of the natural gas processing plants along the path of Hurricane Gustav have shut down operations to allow workers to evacuate the area in advance of the storm. Also see: Hurricane Situation Reports from DOE's Office of Electricity Delivery & Energy Reliability STEO Hurricane Analysis (pdf)