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Oil prices
fell on Thursday as Hurricane Rita weakened slightly after
prompting Gulf Coast refineries to shut, cutting crude demand
nearly 30% in the United States, the world's largest
consumer.
Oil companies shut 13 refineries in Texas and two in Louisiana as a
precaution against the storm.
"Bottom line, refinery demand simply isn't there," said Jim
Ritterbusch, president of Ritterbusch and Associates in Illinois.
Even though refineries shut, major flooding damage, like that
caused by Katrina, was unlikely, he said.
US light crude settled 30 cents weaker at $US66.50 ($NZ95.78) a
barrel - below a three-week high of $US68.27 hit on
Wednesday. London Brent crude fell 23 cents at
$US64.50.
Rita's
winds slowed to 145 miles per hour on Thursday afternoon from a
high of 175 miles per hour in the morning, dropping the storm's
intensity to Category four. This helped push down prices.
Still, Rita remained an extremely dangerous storm, expected to hit
land by early Saturday in Texas, somewhere between Houston and the
Louisiana border.
Rita churned through the Gulf of Mexico less than a month after
Hurricane Katrina slashed offshore oil and gas platforms and
flooded the Louisiana refining hub, sending prices to a record
$US70.85 a barrel.
Four refineries, representing 5% of US refining capacity, were
still out after that storm. And Rita has added to shut-in offshore
production, with more than 91% of output shut, the Minerals
Management Service said.
Analysts predicted Rita's biggest impact would be on gasoline
prices, as lost refining capacity aggravates a shortage.
"Certainly for product prices, the only way is up," said Mark
Keenan of London-based fund MPC.
US crude supplies are nearly 12% above last year's levels, after
the Organisation of the Petroleum Exporting Countries this summer
sent oil to the world's biggest consumer to avert a shortage in the
fourth quarter.
Analysts warned any damage to natural gas facilities could also
boost prices because lost supplies would be far more difficult to
replace than lost crude.
"The physical implications are potentially quite significant,
particularly for heating oil, heading into winter in the United
States, and natural gas," said Matthew Schwab, managing director of
AIG Financial Products Corp.
For now, gasoline futures were showing the sharpest gains among
refined products.
Gasoline (petrol) futures rose 8.4 cents to nearly $US2.14 a
gallon. Heating oil settled nearly a cent higher to about $US2.05 a
gallon.
Suspended output
About 29% of the total US oil refining capacity of 17.1 million
barrels per day is now shut as a precaution against Rita and
continued closures following Katrina.
Unrest in oil producing countries was also supporting prices.
The arrest of a Nigerian warlord over "treasonable" comments this
week brought his supporters to the streets, threatening violence
and putting supplies from the world's eighth largest exporter of
crude at risk.
More than 100 armed militants invaded a Nigerian oil flow station
operated by US-based Chevron on Thursday, disarming security forces
and forcing it to stop production.
Oil major Shell evacuated staff from its headquarters as a
precaution in a region that accounts for most of Nigeria's 2.4
million barrels per day oil output.
Analysts were also concerned about the upsurge of violence in Iraq
and unease over Iran's secretive nuclear program.
World growth threat
Meanwhile,
IMF chief Rodrigo Rato reaffirmed that rising oil prices have
become a threat to the world economic growth.
At a press conference ahead of the start of International Monetary
Fund and World Bank annual meetings, Rato said "oil prices have
become certainly a threat to the world economy".
He said prices had soared not just because of demand "but also
because of supply constraints, especially in refinery
capacity".
The constraints are a "worrisome sign regarding the future of world
growth", he said.
Rato also alluded to fears of central bankers and economists that
the higher fuel prices will create significant inflationary
pressures.
"We emphasise the need to take that into account from the point of
view of policymakers but also central bankers and monetary
regulations," he said.
In its semi-annual world economic outlook report, the IMF said
yesterday that global growth will slow this year owing to sky-high
oil prices.
