Oil - News

The October contract on sweet crude oil (CL/V4 – 43.87) rose $1.06 yesterday on the New York Mercantile Exchange thanks to Hurricane Ivan. Both investors and oil producers are closely watching to see if Hurricane Ivan will turn and deal the Gulf of a Mexico a direct hit. This region is home to approximately 25 percent of the U.S. oil production. Currently, Ivan is ranked as a Category 5 hurricane with sustained winds of 160 miles per hour. This is the highest ranking on the Saffir-Simpson scale. The last time a Category 5 hurricane ravaged the Gulf was Hurricane Andrew in 1992. The hurricane hit near New Orleans, resulting in a shutdown in as much as 2.7 million barrels per day in refining capacity in the New Orleans-to-Houston area.

Adding to concerns on the Street, the Organization for Petroleum Exporting Countries (OPEC) is scheduled to meet in Vienna tomorrow. The group is expected to release soothing remarks about increasing production. However, many analysts anticipate these comments will be largely ignored considering that 10 of the 11-nation group (excluding Iraq) are already operating near maximum output levels. The group's official production quota is set at 26 million barrels per day (excluding Iraq), but analysts estimate that actual production is closer to 30 million barrels per day - its highest level in 25 years. Adding to the Street's woes, the Department of Energy estimates that spare production is only about another 500,000 barrels per day. How's that for some good news?

Early this morning, it was reported that saboteurs blew up a pipeline linking the northern oils field of Kirkuk to the Baiji refinery. This would impact the level of fuel oil used for pumping operations and tugs at the terminal and hence reduce the export of oil from the country. But that impact was muted by the fact that weather-related issues have slowed exports out of Iraq. Combine events in Iraq with Ivan's intrusion into the oil field of the Gulf of Mexico, and you have the recipe for an early 78-cent pop in the price of the crude contract this morning.