U.S. Oil and Natural Gas Market Impacts

Prices NYMEX Futures Prices (for October delivery) 9/8/2008 Pre-Gustav 8/29/2008 change Week Ago 9/2/2008 Year Ago 9/7/2007   WTI Crude Oil ($/Bbl) 106.34 115.46 -9.12 109.71 76.70   Gasoline RBOB* (c/gal) 275.03 285.42 -10.39 273.37 198.64   Heating Oil (c/gal) 301.31 319.19 -17.88 307.36 214.32   Natural Gas ($/MMBtu) 7.53 7.94 -0.41 7.26 5.50 *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 8, the Minerals Management Service was reporting that about 1.0 million barrels per day (or nearly 80 percent) of the federal portion of the Gulf of Mexico's crude oil production was shut-in. As of 10:00 am EDT (9:00 am CDT), September 8, the Department of Energy reported that 4 refineries in the Gulf of Mexico region remain shutdown, representing about 0.6 million barrels per day of capacity, while another 6 refineries had reduced their crude oil throughput. Additionally, the Department of Energy was reporting that the Capline crude oil pipeline is moving crude oil from its origin point in St. James, LA to its termination point in Illinois, although flows near the origin point are reduced. It was also reported that the Colonial product pipeline, which moves supply from the Gulf Coast to the East Coast, is running, but at reduced rates. The Plantation product pipeline, another pipeline that serves the East Coast with Gulf Coast supply now has full commercial power to the system. The Centennial product pipeline, which moves supply from the Gulf Coast into the Midwest, is back operating normally. However, despite the shut-in of crude oil production and refinery outages, futures prices on the New York Mercantile Exchange (NYMEX) continue to be significantly lower compared to the closing prices on Friday, August 29, before Hurricane Gustav made landfall. Compared to prices before Hurricane Gustav, crude oil for October delivery settled over $9 per barrel lower, while gasoline (RBOB) and heating oil were about 10 cents and 18 cents per gallon lower, respectively, at the close of trading on Monday, September 8. Market expectations that shut-in crude oil production and refinery outages are going to be temporary continues to keep prices down, more than compensating for any pre-hurricane price increases. As long as companies continue to 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 all 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 8, the Minerals Management Service was reporting that over 4.7 billion cubic feet per day (or well over 60 percent) of the federal portion of the Gulf of Mexico's natural gas production was shut-in. The Department of Energy (DOE) reported at noon EDT (11:00 am CDT) September 8, that four pipelines have no gas flow from offshore points. Flows from two of these offshore pipelines may begin within the next two days. Temporary generators continue to supply power and compression at Henry Hub and gas is flowing. Henry Hub is a key point for spot and futures natural gas trading in the United States. The DOE also reported that 19 natural gas processing plants, each with capacity in excess of 175 million cubic feet per day, have resumed operations at either reduced or normal levels. In addition, five plants remain shut down, but are ready to operate once power is restored and/or gas flow commences. An additional four plants remain shut down with no timeline of when the facilities will return to service.   Also see: Hurricane Situation Reports from DOE's Office of Electricity Delivery & Energy Reliability STEO Hurricane Analysis (pdf)