LONDON, Oct 4: World oil prices plummeted by more than $2 on Tuesday on hopes the United States might release emergency stockpiles and despite a warning from analysts of a shortage of refined products in the northern hemisphere winter.
US Energy Secretary Samuel Bodman said meanwhile that Gulf Coast refineries knocked offline by hurricanes Rita and Katrina will take up to a month to resume full operations.
New York’s main contract, light sweet crude for delivery in November, fell $2.32 to $63.15 per barrel in early trading.
In London, the price of Brent North Sea crude for Nov delivery sank $2.18 to $60.62 per barrel.
Analysts said the price falls were overdone as the market was still facing a serious supply crunch, with about a fifth of US refining capacity still shut down.
“This is too much of an over-reaction to the bearish view that there is going to be demand destruction” due to high prices, said Paul Hornsell, head of energy research at Barclays Capital.
“We just don’t see the evidence for that.”
Investec analyst Bruce Evers added that “there is a growing feeling that there is plenty of crude around, but there’s a shortage of (refined) products”.
Bodman said on Monday the United States was “prepared to do what is necessary with strategic reserves”, fuelling speculation the US would release emergency stockpiles to cover lost production.
However, apart from two million barrels of heating fuel, the US strategic reserves consist largely of crude oil.
Hornsell added: “What Bodman really wants to control is gasoline and diesel retail prices, and it’s difficult to do that with lots of crude and too few barrels of heating oil.”
Some 92.8 per cent of Gulf of Mexico crude production was still offline, according to the US Minerals Management Service. Around 75 per cent of natural gas production was also shut down.
But US crude stocks remained about 13 per cent higher than at the same stage last year, while demand has been weakened by the closure of many US refineries.
Bodman told the CNBC television network on Tuesday that about three million barrels a day of refining capacity remained shut down along a string of states, notably around New Orleans and Houston.
Twelve US refineries remain out of operation by the effects of the powerful hurricanes, the Joint Economic Committee of Congress said on Friday.
Six of the refineries are likely to reopen this week, the committee said in a report. But another six, which combined account for eight per cent of US capacity, are likely to remain closed from one to four months.
With refineries struggling, concerns are mounting over heating fuel. Evers said that the arrival of the northern hemisphere winter “could be a wake-up call for the market”.
Elsewhere, French oil giant Total’s Gonfreville plant — the country’s biggest refinery — remained closed due to an ongoing strike.—AFP
