Energy futures rose Friday, rebounding from a big drop a day earlier as some new forecasts said Hurricane Dean will turn into the central Gulf of Mexico and threaten oil and gas installations.
The Federal Reserve's interest rate cut and a fire at a big Chevron Corp. refinery in Mississippi also supported energy prices, but storm impact worries were the big news of the day for energy investors, analysts said.
“It's Dean,” said Michael Lynch, president of Strategic Energy & Economic Research Inc., in Winchester, Mass.
The National Hurricane Center said Dean strengthened to a category 3 hurricane with 125 mile-per-hour winds. Its computer models are now split between the possibility that Dean will head straight into the Gulf — which would mean a much stronger storm and a direct threat to oil and gas infrastructure — and previous forecasts calling for Dean to move west and lose power over Mexico's Yucatan Peninsula.
Royal Dutch Shell PLC said it would evacuate 275 nonessential personnel from the Gulf, adding to the 188 it evacuated earlier this week before another tropical storm struck Texas. Chevron said it will evacuate a small number of nonessential personnel from deep water facilities, but that production will continue at normal levels.
Exxon Mobil Corp., BP PLC and Valero Energy Corp. said they are monitoring Dean, but have not yet evacuated any workers.
Oil and gas prices fell on Thursday partly due to an earlier consensus among forecasters that Dean would weaken over the Yucatan before reaching the Gulf.
Concerns about the global economy contributed to Thursday's steep price declines. On Friday, the Fed cut its discount rate by a half percentage point, easing some investors' fears of an economic slowdown. Energy investors worry that any cooling in the economy could mean less demand for oil and gasoline.
But energy futures moved up only slightly after the Fed's move, suggesting that Dean is the day's real price driver, said James Cordier, president of Liberty Trading Group in Tampa, Fla.
“Prices were higher before the rate cut,” Cordier said.
Light, sweet crude for September delivery rose 98 cents to settle at $71.98 a barrel on the New York Mercantile Exchange, while Nymex natural gas futures gained 13.5 cents to settle at $7.01 per 1,000 cubic feet.
In London, October Brent crude added 67 cents to settle at $70.44 a barrel on the ICE Futures exchange.
September gasoline rose 6.05 cents to settle at $2.0388 a gallon, while heating oil gained 3.44 cents to $2.0173 a gallon. Gasoline and heating oil were following oil's lead, but were also boosted by word of a fire Thursday at Chevron's 330,000 barrel-per-day refinery in Pascagoula, Miss., and news of an unexpected equipment shutdown at Valero Energy Corp.'s Port Arthur, Texas, refinery.
Countering that news was an announcement that a 108,000 barrel-per-day refinery in Coffeyville, Kan., that closed after a June flood, is in the process of restarting. The refinery's closure had been blamed for early July gas price spikes in the Midwest.
Chevron spokesman Steve Renfroe said the Pascagoula refinery lost one of its two crude processing units, but declined to say how much gasoline production has been lost. Damage is still being assessed, he said. Dow Jones Newswires reported the unit can process 150,000 barrels of crude per day.
“Much of the refinery is still operating,” Renfroe said.
Valero spokesman Bill Day said the Port Arthur refinery would lose 70,000 barrels per day of gasoline production, and 50,000 barrels per day of distillate production, until next week.
At the pump, meanwhile, gas prices fell 0.3 cent overnight to a national average of $2.759 a gallon, according to AAA and the Oil Price Information Service. Retail prices, which typically lag the futures market, peaked at $3.227 a gallon in late May on concerns the refining industry would be unable to meet peak summer driving demand.
Several weeks of growing refinery activity and gasoline inventory levels appeared to have alleviated those concerns. But refinery activity fell steeply last week, and while it rebounded this week, gasoline inventories have fallen for two weeks in a row.
Still, summer driving season is almost over, analysts note. While new reports of refinery outages provide some support to gas prices, they don't pack the same punch as they did a month ago.
“A little bit,” is how Lynch described the Chevron and Valero announcement's contribution to Friday's price gains. “But I think the fear is more losing the Houston refining sector for a few days from (Dean).”
