Oil prices fell this morning, extending Friday's drop, after the release by industrialised nations of emergency oil stocks to prevent a US fuel crisis after Hurricane Katrina. Worries about US consumer confidence and the impact for oil demand of Katrina also undermined the oil market.
London Brent crude was down $1.22 to $64.84 this evening, back to the level seen before Katrina disrupted US Gulf oil production and refining operations. US crude was closed for Labour Day holiday after finishing at $67.57 a barrel, off last week's record high of $70.85 a barrel.
The International Energy Agency said on Friday that its 26 members would release 2 million barrels per day of oil for 30 days to compensate for the loss of a tenth of US refinery output and a quarter of its domestic crude production last week.
It is the first time since 1991 that the IEA has tapped its members' 1.5 billion barrels in government oil stocks, created in the 1970s after the Arab oil embargo.
The US will auction off a million bpd of crude oil from national reserves while European and Asian countries were urged to release petroleum products such as petrol, which are in short supply. Japan said it would supply 240,000 bpd of the total, with the release set to be mostly oil products from private-sector inventories.
Short term, extra fuel supplies will come as good news for the US, hit by sporadic shortages and record retail prices, prompting President George W Bush to urge Americans to go easy at the pump. US petrol demand accounts for more than 40% of world petrol consumption and 10% of total world oil consumption.
The US oil industry is still struggling to recover from Hurricane Katrina, which flooded refineries, cut power supplies to pipelines and knocked down rigs and platforms a week ago.
Only one of the eight refineries in Louisiana and Mississippi shut by Hurricane Katrina had restarted by yesterday evening, while two of the largest plants have suffered extensive flooding and could be down for months, the government has said. Another dozen plants were running at reduced rates because of crude supply disruptions, further straining fuel supplies in an industry that was already operating at maximum rates.
But, with power returning to the region, pipelines were able to increase operating rates. The nation's biggest refined-oil pipeline, Colonial, was expected to reach 86% of capacity over the weekend.
Crude oil output from the Gulf of Mexico, home to a quarter of US domestic production, was running at 21% of its normal rate, up 10 percentage points since Friday.
