Oil Ends Lower as Sandy Fuels Output and Demand Woe

Oil futures fell Monday to settle back below $86 a barrel and gasoline prices rose, with the market weighing the prospects for energy demand and production, as the East Coast braced for Hurricane Sandy.

Crude for December delivery lost 74 cents, or 0.9%, to settle at $85.54 a barrel. It was the lowest settlement for crude futures since July 10, according to FactSet data.

The New York trading floor was closed Monday as Hurricane Sandy approached the East Coast, but energy futures traded on the electronic platform and settled at their usual time Monday.

A spokesman for CME Group Inc.’s  New York Mercantile Exchange said he could not comment when asked if floor trading would open Tuesday, “except to say that we will continue to monitor the situation as well as continue our coordination with other exchanges.”

“The hurricane has implications on price of oil as it affects both supply and demand,” said Fawad Razaqzada, technical analyst at GFT Markets in London. The shutdown of some East Coast oil refineries “could potentially reduce the total U.S. output by around 7%,” he wrote in an email.

But for now, “supply concerns are more than offset by the ongoing demand worries, which is why [West Texas Intermediate crude] is again trading lower,” Razaqzada added. “Investors are concerned that the storm will dampen U.S. oil consumption due to reduced land and air transportation.”

Demand impact

Gasoline futures rallied Monday, with the November contract RBX2 +1.58%  climbing 6 cents, or 2.1%, to settle at $2.76 a gallon.

“This storm is certainly going to be one of the most significant [gasoline] ‘demand destroyers’ of the century,” said Tom Kloza, chief oil analyst at the Oil Price Information Service. It also has the possibility of “contributing some supply disruption.”

In its latest situation report, the U.S. Department of Energy’s Office of Electricity Delivery and Energy Reliability said that as of 8 a.m. Eastern, Phillips 66 reported that its 238,000 barrel-per-day refinery in Linden, N.J., was shut down. There are reduced refinery rates at Philadelphia Energy Solutions’ Philadelphia refinery and PBF Energy’s Delaware City refinery.

Kloza believes the storm will remove some 2 million to 5 million barrels of consumption from demand. “If refineries are restarted without incident and waterborne transport gets back to normal (by Friday or the weekend), I believe that today’s 5-10 cents a gallon increases will prove to be ‘one-off’ moves.”

November heating oil also rose nearly 2 cents, or 0.6%, to $3.12 a gallon.

The November contracts for gasoline and heating oil expire after the close on Wednesday.

“In the short term, the market will be focused on refinery shutdowns and the lack of imports, but what we may be talking about after the storm is the biggest

demand-destruction event in history,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago.

On Friday, oil futures settled 23 cents higher to $86.23 a barrel on the New York Mercantile Exchange. Friday’s mild gain for Nymex oil futures pared losses to about 4% over the week after some mixed economic data.

Over in London, December Brent crude settled at $109.44 a barrel, down 11 cents, or 0.1%, on ICE Futures.

Back in the United States, natural-gas futures also found support. the November contract expired as of the price settlement Monday.

Natural gas for delivery in November rose 7 cents, or 2.1%, at $3.47 per million British thermal units.

December natural gas settled at $3.80, up 8 cents, or 2.1%.

For natural gas, “I think it’s more the thrill of the hurricane on settlement day than anything,” said Beth Sewell, managing partner at Quantum Power & Gas Services. The “reality is demand will drop a lot while the power is out, so there’s no reason to rally — other than short covering.”

Source: www.marketwatch.com