Crude oil surged $2.53 to $98.03 per barrel in early trading Tuesday on a Texas refinery fire and concern OPEC will cut production at its March meeting.A strong explosion Monday created a fire and shut off production at an oil refinery operated by Alon USA Energy (NYSE: ALJ) near Big Spring, Texas. The facility can refine 70,000 barrels of crude per day.
Heating oil jumped about 6 cents to $2.71 per gallon, unleaded gasoline surged about 7 cents to $2.56 per gallon, and natural gas rose 26 cents to $8.92 per million BTUs.
Independent energy trader Jim Dietz told BloggingStocks Tuesday that given the U.S.'s barely-adequate refining capacity, any incident in the refinery system can cause a price spike.
"There is so little spare capacity in the system, even a fire at a minor location can have traders flashing the buy card," Dietz said. "The U.S. has decided to allow new refinery construction, but the next new facility won't be ready for about 5 to 6 years. Expansions at existing refineries will provide some additional spare capacity later this year." Dietz added that he has no open daily positions, and is short oil with monthly contracts.
Edgy oil bears
Dietz said OPEC's pending March 5 meeting is also making oil bears like himself "slightly edgy." OPEC officials have hinted that a production cut may be up ahead due to the cartel's concern that global oil demand increases will slow as the U.S. economy is slowing and as the spring quarter, the lowest oil demand quarter of the year, starts.
"Right now, the market is factoring-in an OPEC production cut, and that's helping put a floor under prices, at least short-term. And this market is very short-term," Dietz said. "Civil unrest in Nigeria and Venezuela's statements about possibly cutting off oil to the U.S. also has the market concerned. Personally, I don't think Venezuela will cut off oil to the U.S., but it's enough of a concern among traders to boost oil about a $2 more."
Despite the recent bullish items, Dietz said he still expects oil prices to trend lower heading into the spring. Dietz said sees oil testing $75-80 per barrel and retail unleaded gasoline testing $2.75-2.80 per gallon by early spring.
Oil hit an all-time high, in inflation-adjusted terms, of $102.80 per barrel in April 1980.
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Reader Comments (Page 1 of 1)
2-19-2008 @ 11:20AM
John said...
Darn it people, stop playing with matches when you're inside the refineries.
2-20-2008 @ 8:26PM
mary said...
this makes me sick.... It is wrong that we have to pay over $2.00 for gas!!! I know the truth. My husband worked on oil rigs for years.
DENY the country in South America food or what ever It WE have our own gas AND too many people that need to work. so put them to work
thank you
Mary Ann