USA: Production fell 15% while demand rose 3%

Rising prices have been driven by tight supplies. The American Petroleum Institute reported Wednesday that U.S. oil production fell 15 percent in September to the lowest monthly level in more than half a century, led by sharp declines in output from Alaska and the hurricane-hit Gulf of Mexico region.

In the same month, the API said, total U.S. demand grew 3 percent compared to a year ago.

NEW YORK (AP) — Crude oil futures rallied back above $53 a barrel Wednesday after a pipeline explosion in Mexico heightened supply concerns.
30-inch oil line exploded in eastern Mexico on Wednesday morning, according to local officials. Enrique Fonseca, chief for the communication center of the Veracruz state civil defense agency, said workers from the government oil company Petroleos Mexicanos, or Pemex, had closed off the line and were working to contain the spilled oil.

The news was enough to set off buying in an already jittery market atmosphere, said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York.

“It looked as if we were starting a corrective phase in the market,” Silliere said. “But you don’t expect a correction to last one day … That’s not normal.”

Although the strength of the rally came as a surprise to many, analysts nevertheless had not expected the latest drop to last for long.

“I think the selloff yesterday and the selloff today were more technical in nature than fundamentally driven,” said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. “It’s hard to find too many reasons to be negative on prices, at least for the near-term.”

Rising prices have been driven by tight supplies. The American Petroleum Institute reported Wednesday that U.S. oil production fell 15 percent in September to the lowest monthly level in more than half a century, led by sharp declines in output from Alaska and the hurricane-hit Gulf of Mexico region.

In the same month, the API said, total U.S. demand grew 3 percent compared to a year ago.

While oil prices are around 60 percent higher than a year ago, they are still more than $27 below the peak inflation-adjusted price reached in 1981.

On the International Petroleum Exchange in London, Brent crude for November delivery rose 45 cents to settle at $50.05 per barrel.

Excess capacity now hovers just about 1 percent above the world’s daily diet of 82 million barrels, and the Paris-based International Energy Agency, a watchdog for oil-consuming countries, said Tuesday that demand is expected to rise to close to 84 million barrels a day by 2005.

Adding to supply concerns, the Royal Dutch/Shell Group said Tuesday its Nigerian output would be cut by 20,000 barrels a day until a ruptured pipeline could be fixed. While officials tried to investigate the cause, saboteurs set the pipeline on fire.

The production cuts come in the middle of national strike and a fragile peace deal between rebels and the government for control over the oil-rich Niger Delta that churns out 2.5 million barrels of crude daily.

In the Gulf of Mexico, daily oil output is 471,000 barrels a day below normal due to damage caused by Hurricane Ivan last month. More than 19 million barrels of oil production has been lost since Sept. 11.

These disruptions are important because both Nigeria and the Gulf of Mexico produce low-sulfur crude, which is particularly desirable for refiners.

Repeated efforts by the Organization of Petroleum Exporting Countries to lower prices by boosting output have been largely ineffective because the oil they offer the market has a high-sulfur content.

Also on Wednesday developments in Russia came firmly back into play as the Justice Ministry moved to sell an unspecified chunk of oil giant Yukos’ subsidiary Yuganskneftegaz to meet some of its $7 billion back tax bill. Russian officials valued Yukos’ largest production unit at $10.4 billion, the low end of what an independent bank had recommended.

Yukos produces about 2 percent of the world’s oil and said it might have to cut production if the government continues its relentless pursuit of the taxes.

In other Nymex trading, heating oil for November delivery rose 4.46 cents to settle at $1.4991 per gallon; November gasoline rose 2.8 cents to settle at $1.4083 per gallon; and November natural gas rose 21.5 cents to settle at $6.851 per 1,000 cubic feet.

Associated Press Writers Robert Barr in London and Yeoh En-Lai in Singapore contributed to this report.
Traders were also nervously monitoring developments in Nigeria, where a nationwide strike is underway, and in the Gulf of Mexico, where production remains hobbled.

Crude for November delivery surged $1.13 to settle at $53.64 per barrel on the New York Mercantile Exchange, after falling as low as $51.49 in morning trading. On Tuesday, light, sweet crude settled at $52.51.

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