Oil Slides to 3-Month Low as Refiners Cut Output on Sandy

Oil fell to a three-month low and gasoline advanced after U.S. East Coast refineries reduced operations amid forecasts Hurricane Sandy will strike extreme southern New Jersey or central Delaware.

Crude futures dropped 0.9 percent as Phillips 66, NuStar Energy LP (NS), Hess Corp. (HES), PBF Energy Inc. (PBF) and Philadelphia Energy Solutions shut or lowered output at regional refineries and terminals as a precaution. Gasoline rose for a third day. Sandy will probably make landfall by 9 p.m. New York time, a National Hurricane Center advisory showed.

“Sandy is bullish for the products and bearish for crude,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “A number of refineries reduced operations or completely shut down, which is going to reduce fuel supplies. The shutdowns will reduce demand for crude in the short term.”

Crude oil for December delivery fell 74 cents to settle at $85.54 a barrel on the New York Mercantile Exchange. Prices are down 14 percent this year.

Gasoline for November delivery climbed 5.77 cents, or 2.1 percent, to $2.7568 a gallon in New York. November heating oil increased 1.74 cents, or 0.6 percent, to $3.1152 a gallon.

Floor trading on the Nymex was suspended today because of Sandy, CME Group Inc. (CME), the owner of the exchange, said in an e- mailed statement. Electronic trading, where the bulk of futures volume occurs, was normal.

Strengthening Storm

Sandy packed maximum sustained winds of 90 miles (145 kilometers) per hour, the center said at 4 p.m. New York time. The storm’s center was 65 miles southeast of Atlantic City, New Jersey, moving west-northwest at 28 mph.

The hurricane may bring a surge of almost 12 feet (3.7 meters) in Manhattan, said Howard Glazer, New York’s director of state operations.

New York, New Jersey, Baltimore, Long Island, Connecticut and Delaware Bay ports were closed to vessel traffic by the U.S. Coast Guard, halting oil tanker deliveries that may affect the region’s plants. There are seven refineries in the area with a combined capacity of about 1.29 million barrels a day, according to data compiled by Bloomberg.

Phillips 66 (PSX) is shutting its 238,000-barrel-a-day Bayway refinery and expects the plant to be idled today. Hess said yesterday it would begin cutting rates at its 70,000-barrel-a- day Port Reading plant, while NuStar said Oct. 27 that its 74,000-barrel-a-day Paulsboro asphalt refinery would shut today. PBF was cutting rates at refineries in Paulsboro and Delaware City, Delaware, and Philadelphia Energy Solutions reduced rates at the plant in Philadelphia.

Ample Stockpiles

“The refinery shutdowns are sending gasoline and heating oil higher,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The disruptions should be short and prices should soon weaken.”

Oil in New York slumped 4.2 percent last week as the Energy Department said supplies jumped 5.9 million barrels to 375.1 million in the seven days to Oct. 19, the highest level for this time of year since the government started reporting inventories in 1982.

“Crude oil is down because we expect supplies to continue rising,” Lynch said.

Brent oil for December settlement slipped 11 cents to end the session at $109.44 a barrel on the London-based ICE Futures Europe exchange. The European benchmark was at a $23.90-a-barrel premium to West Texas Intermediate oil traded in New York, up from $23.27 at the Oct. 26 settlement, according to Bloomberg calculations of exchange data.

Trading volume was 284,764 contracts as of 3:53 p.m. Volume totaled 412,544 contracts on Oct. 26, 21 percent below the three-month average. Open interest was 1.59 million, the highest level since Sept. 19.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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