Crude Drops 2% to End Volatile Week
Crude-oil futures fell 2% Friday, ending a week of big price swings, as the threat of gasoline-supply problems and refinery shutdowns raised new concerns about oil demand.
The U.S. refining sector typically lowers fuel production at this time of year to perform maintenance, but unplanned outages, particularly on the West Coast, have cut the number of refineries turning oil into gasoline, diesel and other fuels. Two of the country's largest refiners have begun rationing gasoline on the West Coast. And on Thursday, a fire at the 584,000-barrel-a-day Baytown refinery in Texas reignited concerns about low fuel supplies and the impact of lower refining output on oil.
"We do have a number of refiners in maintenance along with unplanned outages in the U.S. and Europe, and that is impacting crude demand," said Andy Lipow, president of Lipow Oil Associates, an energy-consulting firm in Houston. "Crude oil remains under pressure."
Light, sweet crude for November delivery fell $1.83 to $89.88 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange closed 56 cents lower at $112.02 a barrel.
Energy traders have been on edge this week as problems in the gasoline markets created big swings in oil and gasoline futures. Meanwhile, concerns about further supply problems in the Middle East and North Africa have begun to wane. Rhetoric between Iran and Israel has cooled, and there are signs that economic sanctions on Iran due to the country's nuclear program are creating a backlash against the government.
Oil prices are down 9.2% from a high of $99 a barrel in mid-September, and some market watchers say further drops could be ahead.
"The prevailing attitude is this market probably should be a little lower," said Peter Donovan, an oil broker at Vantage Trading in New York.
The market for fuel products has added to volatility in crude prices. Gasoline futures rose 0.3% Friday to settle at $2.9525 a gallon, up 5.5% from a two-month low of $2.7995 a gallon Wednesday.
Refinery operator Valero Energy Corp. (VLO) on Thursday said it would stop selling fuel in the spot market due to worries about product availability. Exxon Mobil Corp. (XOM) has begun rationing the fuel it supplies to some customers on the West Coast after a power outage Monday at the company's 149,500-barrel-a-day refinery in Torrance, Calif., though it expects the refinery to return to normal operations soon.
In Los Angeles, wholesale gasoline prices are up 16% over the past two weeks, and analysts said Friday that high prices will likely continue for weeks.
West Coast gasoline stocks stood at 26.6 million barrels during the last week of September, the lowest level for that time of year since 2008, according to the U.S. Energy Information Administration.
The focus on refinery issues and the gasoline market trumped a bullish report on the U.S. jobs market. After sharp swings of nearly $4 in oil prices in each of the last two sessions, traders remained on edge and were reluctant to jump back into the market, said Carl Larry, head of trading adviser Oil Outlooks and Opinions.
"We're not seeing a lot of follow-through," he said. "The economic numbers are pointing up, but this week, the oil market has been falling."
November heating oil recently settled 3.25 cents lower at $3.1559 a gallon.
Write to Jerry A. DiColo at email@example.com and Ben Lefebvre at firstname.lastname@example.org
Copyright (c) 2012 Dow Jones & Company, Inc.