U.S. Cut Off From Oil Supply
Oil prices dropped earlier today as investors breathed a sigh of relief that Hurricane Dean spared key U.S. energy infrastructure in the northern Gulf of Mexico. The news sent crude for September delivery down $1.65, or 2.3%, to $69.47 a barrel on the New York Mercantile Exchange. October crude, which became the lead-month contract at the session’s end, closed $1.39 lower at $69.57 a barrel. In addition, energy stocks were pummeled as the storm premium unraveled. On the other hand, as I alluded in this Sunday’s post, the storm passed through Mexico’s Bay of Campeche, home to the giant Cantarell complex of oil fields and a significant concentration of Mexico’s oil production. No news regarding damage has been released as of yet.
Pemex, the state-owned oil company, withdrew 19,000 workers from 437 oil pits ahead of Hurricane Dean. As a result, 2.6 million barrels of oil per day and 80% of Mexico’s oil production are shut in. Mexico was the United States’ second-largest source of foreign petroleum products in May (the latest month for which statistics were available, according to the U.S. Department of Energy). The U.S. imported 1.6 million barrels of petroleum a day from Mexico in May, slightly more than Saudi Arabia’s exports to the United States but well behind Canada’s 2.5 million barrels. Mexico’s oil exports account for about 15% of U.S. oil supplies, according to MarketWatch. If 80% of Mexico’s oil production is now shut in due to Hurricane Dean, the United States is cut off from approximately 12% of its oil supply. Yet, Americans celebrate Hurricane Dean’s “close-call.” According to the Xinhua News Agency today, “Pemex stated it will be difficult to comply with its international commitments in the forthcoming days, in other words, its crude oil exports to the United States.” Pemex has oil reserves of 10 million barrels to help meet export contracts during the shutdown, said spokeswoman Martha Avelar in a telephone interview with Bloomberg today. Seeing that Mexico exported 1.79 barrels of oil per day in 2006, that leaves approximately 5.6 days’ worth of oil reserves available for export.
Talk about a potential U.S. economic crisis…
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