Crude oil futures briefly sank below the psychologically important US$100-a-barrel mark for the first time in five months on Friday, showing that investors believe a worsening global economy will continue to drive down demand for some time in the US and elsewhere.
Gasoline prices, however, jumped at the wholesale level as Hurricane Ike swept through Gulf of Mexico, prompting companies along the Texas coast to shut down refining and drilling operations.
On the New York Mercantile Exchange, light, sweet crude for October delivery rose US$0.31 to settle at US$101.18 a barrel, after briefly sinking to US$99.99. In London, October Brent crude fell US$0.06 to settle at US$97.58 a barrel on the ICE Futures exchange, after closing at a six-month low in the previous trading session.
October gasoline futures climbed US$0.0208 to settle at US$2.7696 a gallon (3.79 liters) on the NYMEX.
The fact that US fuel demand is so weak right now might mean the recent surge in the wholesale price of gasoline — which rose to about US$4.85 a gallon in the Gulf Coast market on Friday — might not be passed along to consumers unless Ike’s impact is severe and long-lasting.
“Major oil companies are sensitive to raising prices in this environment,” said Ben Brockwell, director of data pricing and information services at the Oil Price Information Service (OPIS).
Ike was forecast to land early yesterday as a Category 3 hurricane near Galveston, a barrier island about 80km southeast of Houston, Texas. The Houston region is home to about one-fifth of US refining capacity, and the site of a major fuel and grain distribution channel.
Wholesale gasoline prices on the Gulf Coast moved further into uncharted territory on Friday, as refineries anticipated that Ike would lead to at least a significant pause in their operations, and at worst damage to their facilities. On Thursday, the Gulf Coast wholesale price of gasoline last traded at around US$4.75 a gallon, according to OPIS, up substantially from about US$3.25 on Wednesday and less than US$3 on Tuesday.
Wholesale prices were much lower in other regions such as Chicago, New York and Los Angeles, but even those areas saw prices rise.
“Hopefully it’s a temporary phenomenon, but we won’t know until next week,” Brockwell said.
Wholesale prices are determined by major players in the supply chain including refining and trading companies, which constantly buy and sell barrels. These prices end up deciding what refineries charge distributors, before they get marked up further at the retail level for the consumer.
The average US retail price for gasoline edged up less than US$0.01 to US$3.675 on Friday from Thursday, according to auto club AAA, OPIS and Wright Express.
Exxon Mobil Corp, Valero Energy Corp, ConocoPhillips and Marathon Oil Co have begun halting operations as the Category 2 hurricane headed straight for the US’ biggest complex of refineries and petrochemical plants. US wholesale gasoline prices spiked 30 percent on Thursday.
As of Friday, nearly 98 percent of crude production and more than 94 percent of natural gas production in the Gulf were shuttered, according to the Department of the Interior’s Minerals Management Service.
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