US drivers easing back on their petrol consumption, coupled with possible releases of strategic crude reserves and emergency heating oil stocks, have allayed industry concerns about fuel shortages as the world’s largest energy consumer prepares for the northern winter.
But most analysts believe there is still support for strong oil prices as the US struggles to bring hurricane-damaged production and refining facilities back online. They see only limited further downside, with a solid floor for West Texas Intermediate crude in the low US$60s.
Ten refineries, accounting for 14% of US capacity, remained shut on Thursday and about 20 gas processing plants; while about 90% of Gulf of Mexico oil production and 72% of offshore natural gas production is still out of action.
The slow recovery of Gulf Coast refineries is affecting the US economy in many ways, with airlines cutting routes, shipping rates rising and prices creeping up across the board.
The breakdown in US refining capabilities even prompted US President George W Bush to this week call for more refineries in a nation where none has been built for over two decades.
Crude tumbled to a two-month low and petrol slid for a sixth session on the New York Mercantile Exchange yesterday on the back of surging US fuel imports and stagnating domestic demand.
Crude oil for November delivery fell US$1.41, or 2.3%, to US$61.38 per barrel at the close of trading on the NYME, after earlier touching US$60.70, the lowest since August 4. Petrol for November delivery plunged 7.28 cents, or 3.8%, to US$1.835 per gallon, after earlier touching US$1.795, the lowest since September 19.
Though oil is now almost US$10 cheaper than the US$70.85 per barrel level hit in late August, and US motorists are more cautious than they were during the peak northern summertime driving season, analysts say oil prices in real terms are still close to levels not seen for 25 years.
The US Energy Department said imports of petrol and other fuels had jumped 26% to 4.5 million barrels during the past week, the highest since at least 1990, as the International Energy Agency released its emergency stockpiles to substitute for lost production because of Hurricanes Katrina and Rita.
The department said demand for refined oil products over the past four weeks was 2.9% lower than at the same time last year and US fuel demand was also lower than a year ago.
Oil prices also fell on Wednesday, dropping below US$63, as investors saw more evidence high energy costs are crimping consumption and Washington offered to tap its emergency reserves. On the NYME US light crude ended down US$1.11 to US$62.79, after falling US$1.57 on Tuesday, while London Brent crude was down US$1.19 to US$60.03 on the International Petroleum Exchange.
Oil had also fallen on Monday after the Bush administration offered to tap the country's emergency oil reserves, if needed, to prevent a shortage of winter fuel in the world's biggest oil consumer.
US crude dropped to about US$65.70 per barrel, while London Brent crude slipped to US$63.18 after Energy Secretary Sam Bodman said he expected oil firms to borrow crude from government emergency stocks as their hurricane-damaged refineries restarted. He added that the US might also sell crude from its Strategic Petroleum Reserve.
The world's big consumers are also feeling the pain of high-priced energy, with the European Commission forecasting euro zone economic growth could slow in 2005.
International Energy Agency head Claude Mandil noted some demand destruction related to both high prices and logistical constraints and said if it proved to be more than a temporary thing further action might not be necessary to achieve a balanced market.
Hurricanes Katrina and Rita destroyed over 100 oil and natural gas offshore GoM platforms and damaged over 50 others, some of which are not expected to be back online until next year. US Interior Secretary Gale Norton said the destroyed platforms were unlikely to be rebuilt and the damage repair bill would run into "billions of dollars".
