Oil, Gasoline Fall as IEA Releases Crude Oil and Fuel Reserves

Sept. 2 (Bloomberg) -- Crude oil and gasoline had their biggest declines since Hurricane Katrina devastated U.S. Gulf coast production facilities and as the International Energy Agency released emergency oil and fuel supplies.
The agency will make 60 million barrels available, with 30 million coming from the U.S. Strategic Petroleum Reserve, over the next 30 days, Energy Secretary Samuel Bodman said. The Louisiana Offshore Oil Port, the biggest U.S. oil-import terminal, and pipelines have opened. The U.S. relaxed clean-air rules this week in an effort to increase fuel supplies. "The U.S. and our allies are throwing everything they have at this problem,'' said John Kilduff, vice president of risk management at Fimat USA in New York. "The IEA release may result in an increase of actual barrels. The government has an open-door policy at the SPR and relaxed EPA standards may stabilize the situation.'' Crude oil for October delivery fell $1.90, or 2.7 percent, to close at $67.57 a barrel on the New York Mercantile Exchange. The contract touched a record $70.85 on Aug. 30. Oil is up 2.2 percent for the week. Gasoline for October delivery fell 22.53 cents, or 9.4 percent, to close at $2.1837 a gallon. The October contract is up 18 percent this week. Katrina's destruction caused fuel shortages in parts of the U.S. and raised concern that the economy will slow. Companies and individuals increased spending as gasoline, diesel and jet fuel prices surged. Prices may rise before the end of the year as refiners struggle to restore output. Global demand peaks in the fourth quarter as winter arrives in the Northern Hemisphere. U.S. consumers are likely to pay $3 a gallon or more for gasoline for at least "the next six to eight weeks'' because of refinery damage, Ben Bernanke, President George W. Bush's chief economic adviser, said yesterday. The agency's move is the second coordinated release in its 31-year history. The group controls 1.4 billion barrels that can be used in emergencies. The only other time the reserves have been used was during the Persian Gulf War in 1991. The use of reserves is intended "to supplement the market forces already in place,'' Bodman said at a press conference in Washington.

Strategic Oil Reserve

Exxon Mobil Corp. will receive 6 million barrels of oil from the nations' reserve to counter supply disruptions,Bodman said in a statement yesterday. Valero Energy Corp., the largest U.S. oil refiner, said the department approved a 1.5 million- barrel loan from the reserve. Placid Refining Co. LLC said the government approved its request for 1 million barrels. "It's possible that with more oil coming into the market organized by the IEA, it will push prices a lot lower,'' said Kevin Blemkin, a broker with Man Financial in London. "Gasoline is obviously where we have the main problem.'' Regular-grade gasoline, averaged nationwide, rose 16 cents to a record $2.867 a gallon yesterday, according to data released today by the AAA, the nation's largest motoring organization. Pump prices are 55 percent higher than a year ago. One-fourth of Atlanta area gasoline stations had no fuel to sell this morning, said Georgia Association of Petroleum Retailers director Tom Smith. Smith said the state's gasoline distribution pipelines were running and stations would receive allocations of fuel throughout the weekend. Panic-buying midweek because of rumors of gasoline outages contributed to the short supply, Smith said. "The massive lines at all the stations sucked the bottom of the tank out.'' The September gasoline contract in New York touched $2.92 a gallon on Aug. 31, the last day it traded and the highest since trading began in 1984. Futures are up 83 percent from a year ago. The Nymex shut at 1 p.m. instead of the normal 2:30 p.m. today and will remain closed on Sept. 5 because of the Labor Day holiday. "What we need is gasoline and the market appears to be taking care of that, as cargoes leave Europe for the U.S.,'' said Rick Mueller, an analyst with Energy Security Analysis Inc. in Tilburg, the Netherlands. "When the spread is this wide the cargoes will come.'' BP Plc and Morgan Stanley are among companies planning to ship European gasoline to the U.S. As many as 10 tankers were booked this week to transport 363,000 metric tons, according to five shipbrokers yesterday.

Gasoline Standards

"The EPA just relaxed gasoline standards, making a greater volume available,'' said Kyle Cooper, an analyst with Citigroup Inc. in Houston. "Both chemically and physically it is easier to make winter-grade gasoline.'' The U.S. Environmental Protection Agency on Aug. 31 waived federal clean air standards for all 50 states, the District of Columbia and U.S. territories through at least Sept. 15 because of supply disruptions caused by Katrina. Refiners, importers, distributors and retailers will be able to sell gasoline that meets lower standards for emissions. "Some refiners didn't suffer as much damage as was first feared,'' Mueller said. "Once the repairs are done refiners have every reason to increase their runs.'' Royal Dutch Shell Plc, Europe's second-biggest oil company, said repairs are under way at the 225,000-barrel Motiva Convent refinery in Louisiana. The plant may start next week. Entergy Corp., Louisiana's largest utility, has restored electricity to a majority of the refineries that lost power after Katrina slammed into the Gulf Coast. The profit margin for turning a barrel of crude oil into gasoline and heating oil is $22.849, based on futures prices in New York. That has almost doubled from Aug. 26 and is almost four times higher than a year ago. Gasoline stockpiles in the U.S. have fallen for nine straight weeks and are at their lowest since November 2003, according to the Energy Department's weekly inventory report, which was released Aug. 31. Inventories are 4 percent lower than the five-year seasonal average, department figures show. "Next week's report will be incredibly bullish,'' Cooper said. "Hoarding is going on along the Gulf Coast and elsewhere, which will result in huge declines across the board.'' In London, the October Brent crude-oil futures contract fell $1.66, or 2.5 percent, to close at $66.06 a barrel on the International Petroleum Exchange. Prices touched $67.88, the highest since trading began in 1988. Next week, crude oil may rise above this week's record on concern damage will take months to repair, a Bloomberg survey showed. Thirty-one of 61 analysts and strategists surveyed, or 51 percent, said oil will rise next week. Eighteen, or 30 percent, said prices will decline and 12 forecast little change.