By Brad Zigler
Oil prices have ratcheted up nearly $3 per barrel over the last two trading days as Tropical Storm Gustav gathered strength and set a collision course with America's offshore oil patch in the Gulf of Mexico. Energy companies began evacuating crews from Gulf drilling platforms on Wednesday as the storm bore down on the region.
Forecasts call for Gustav to reach hurricane status on its way to the Gulf, with the potential to shutter production in an area that accounts for a quarter of U.S. oil output. Gustav's likely to generate Category 3-level winds of 111 miles per hour before making landfall on the Louisiana coast by Monday or Tuesday.
NYMEX October crude oil closed near session highs at $118.42 per barrel Wednesday as traders focused on Gustav's potential to disrupt supplies. The psychology in the trading rings, however, has changed significantly since oil's July peak. Gustav may not pack the wallop it might have had if it arrived on-scene just a month or two earlier. Back then, news of an imminent Gulf hurricane would likely have sent oil up the daily trading limit of $10 per barrel.
The oil market's near-term quarterly contango, however, was snugged up 25 cents per barrel to $1.25, indicating that some supply pressure is being felt.
Oil Inventories Vs. Backwardation/Contango
On Wednesday, an Energy Department status report showed U.S. commercial oil stocks dipping by some 100,000 barrels last week, surprising oil analysts who'd been banking on a 1.1-million-barrel increase. Refinery utilization stepped up nearly 2% last week to 87.3% of operable capacity as gasoline production rose to an average 9.2 million barrels per day. Daily production of distillate fuels, including diesel and heating oil, however, fell to 4.4 million barrels
Gasoline stocks fell 1.2 million barrels, much less than oil patch experts' forecast of a 3.2-million-barrel decline. The consensus call for a 400,000-barrel increase in distillate fuel inventories was also off as stocks remained flat.
The nearby crack NYMEX spread widened by 30 cents per barrel over the past week, nudging up refining margins to 7.5%. A year ago, margins, at 15.3%, were twice as fat.
NYMEX Spot Crude Vs. Refining Margins
