Oil, Gasoline End Session Higher

Gasoline futures continue this week's 30% rally.
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Updated from 1:07 p.m. EDT

Oil rose and gasoline surged in U.S. futures markets Thursday as efforts to turn around fractured energy infrastructure in the aftermath of Hurricane Katrina crawled along.

October crude closed up 53 cents to $69.47 a barrel on Nymex. Oil is currently up about 3% on the week and about 60% on the year.

Crude's march has been slowed by the Bush administration's decision to lend oil from its strategic reserve. After one request was rescinded,

Valero

(VLO) - Get Report

on Thursday asked for 1.5 million barrels of crude to feed its refineries.

"Valero is requesting 1.5 million barrels of crude today from the SPR for two of our newly acquired refineries located in Memphis, Tenn., and Lima, Ohio, as well as for our Krotz Springs refinery," said Mary Rose Brown, a company spokeswoman. "This should bring our Krotz Springs facility to full rates by this Sunday."

News wires reported

Exxon Mobil

(XOM) - Get Report

requested 6 million barrels of crude from strategic reserves.

Meanwhile, unleaded gasoline for October delivery rose 15 cents, or 7%, to $2.40 a gallon, bringing its four-day rally to more than 30%. Eight refineries that make up 10% of U.S. processing capacity remain closed in Mississippi and Louisiana.

Heating oil soared 12 cents to $2.20 a gallon, on concerns that refineries will be ill-equipped to meet an anticipated fourth quarter demand surge for winter products.

In a special report, the Energy Department warned that some refineries could remain closed for months as they cope with flooding.

"Unlike 2004's Hurricane Ivan ... it appears that Hurricane Katrina may have a more lasting impact on refinery production and the distribution system," the department said.

The Capline pipeline that feeds many Midwest refineries with crude oil from the Gulf of Mexico, which was completely shut down, is said to be operating now at 50% capacity.

"With the recent government decision that crude oil from the strategic petroleum reserve will be made available to those affected by the hurricane, there may be some relief for refiners that have reduced their production due to loss of crude supply," the report said. "However, they will need to find a way to get the crude oil from the SPR to their refineries."

To help ease the gasoline crunch in the South, the Environmental Protection Agency on Wednesday relaxed rules governing the sulfur content of gasoline countrywide. The move could clear the way for increased foreign sales and open other supply lines to the storm-afflicted area.

Bill O'Grady, assistant director of market analysis at A.G. Edwards, said that the suspension of the Clear Air Act was a very important step on the way to replenishing U.S. products markets. "This globalizes the U.S. product market and should help pretty significantly," O'Grady said.

O'Grady said the waver of product blending specifications, which differ from state to state and "complicate production and delivery," will allow foreign gasoline to be circulated more easily. "Hopefully the administration will be smart enough to keep it this way for more than a few weeks," O'Grady said.

In a televised address, President Bush said that the decision to ease gasoline blending specifications was meant to "attract more gasoline form overseas," and to immediately address the problem of availability.

Still, Bush noted, "Americans should be prudent in their use of gas in the next few weeks. Don't buy gas if you don't need it."

O'Grady also maintained that the current shortage is a temporary event. "In the short term, people are panicking. But refiners weren't leveled completely. They will slowly come back online, it just doesn't happen immediately."

Throughout the country there is anecdotal evidence that Katrina is playing havoc with pump prices and availability. The American Automobile Association put the average price of gasoline at $2.68 a barrel as of Tuesday; prices on futures exchanged have risen significantly since then.

Geoff Sundstrom at AAA said the group is concerned about price gouging. "We last heard about a station in Atlanta that charged $5 a gallon," he said.

Almost 30% of the country's crude production remains hamstrung by storm damage. U.S. authorities said 1.4 million barrels of daily production was shut in as of yesterday.

The U.S. Minerals Management Service said 83% of natural gas output was shut down.

In company news,

Murphy Oil

(MUR) - Get Report

said its rigs did not sustain permanent damage in the storm but that some flooding occurred at its 125,000-barrel-a-day refinery in Meraux, La. Murphy couldn't say when the unit will be restarted. Murphy shares rose 1.4% to $55.38.

Apache

(APA) - Get Report

said it lost eight of its production platforms in Hurricane Katrina, with an aggregate gross production of roughly 7,000 barrels of oil and 12 million cubic feet of gas per day. Its shares fell 0.5% to $71.20.

The Amex Oil Index, which is up about 6.5% this week and 50% this year, rallied again Thursday, led by a 6.3% gain at

Sunoco

(SUN) - Get Report

.

Amerada Hess

(AHC) - Get Report

is 4.7%, and

Marathon Oil

(MRO) - Get Report

increased 3.2%.