The price of crude oil and petrol futures struck fresh record highs on Tuesday on uncertainty about the extent of lost US petroleum refining production following damage caused by Hurricane Katrina to refineries along the US Gulf of Mexico coastline.
Oil futures in both London and New York reached new nominal highs. IPE Brent for October delivery peaked at $68.89 a barrel, before easing to $67.57, a rise of a hefty $2.70 on the day in late London trade, a 4.2 per cent rise.
The October West Texas Intermediate contract hit a new high of $70.85, before a bout of selling knocked prices down to $69.81, a gain of $2.61 on the day.
The jump in the front month WTI contract caused the long term WTI pricing structure to move back into backwardation, when near-term prices are higher than long term prices, for the first time this year. WTI prices had been trading in contango, when near-dated prices are below longer-dated prices, almost consistently since last autumn.
The contango price structure had encouraged crude oil and petroleum product inventory building. A move to backwardation implies that near term supplies are tighter.
Oil traders said prices have been pushed higher by petroleum products, particular petrol. September unleaded Nymex gasoline contracts struck a record high of $2.4100 a gallon, which equates to an eye-popping $101.22 a barrel. The front-month gasoline contract was trading at $2.3900, up 31.94 cents on the day, in early afternoon New York trade.
Oil analysts estimate that about 2m barrels a day of US refining production had been shut down following the hurricane, or more than 12 per cent of total US production. Analysts estimate that of this about 1.3m b/d is petrol production.
The output disruption has swelled refiner margins for petrol production to more than $20 a barrel, a far cry from the 1990s when refiners were incurring losses for each barrel of petrol produced.
“There does not seem to be too many refiners hedging (oil) at these prices, it appears to be more speculative activity, which throws some doubt on how sustainable this rally is,” said one London-based oil trader.
US heating oil prices were also up sharply. September Nymex heating oil futures added 11.62 to $2.0250 a gallon, down from the record high of $2.060 hit earlier in the day.
Disruption caused by Hurricane Katrina also pushed US natural gas prices higher with October Nymex henry hub natural gas touching $12 per million British thermal units for the second consecutive day.
Gold prices hit a four-week low of $429 a troy ounce on Tuesday, before ending London trade at $429.80/$430.60, down about $6 on the day following a firmer dollar. Silver and platinum prices also fell lower due to the dollar’s gain.
