Crude Oil Drops More Than $2.50 a Barrel

By Mark Shenk
April 9 (Bloomberg)

Crude oil plunged more than $2.50 a barrel in New York, the biggest decline in three months, on speculation that an Energy Department report will show U.S. inventories jumped last week as refiners unexpectedly shut units.

Crude-oil supplies in Cushing, Oklahoma, where oil traded in New York is delivered, surged 12 percent in the week ended March 30, Energy Department figures show. Fires and power outages have forced refiners to shut units, reducing crude-oil demand. Oil prices also fell because release of British naval personnel on April 5 eased concern of a supply disruption in the Persian Gulf.

``Crude oil is pulling everything lower,'' said James Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois. ``It looks like we will see record inventories in Cushing this week because of all of the refinery outages.''

Crude oil for May delivery fell $2.77, or 4.3 percent, to $61.51 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. The contract is heading for the biggest one-day decline since Jan. 4. Futures touched $68.09 a barrel on March 27, the highest since Sept. 6. Prices are down 8.7 percent from a year ago. Xxx

``The continuing spate of refinery outages and maintenance issues is pushing product prices higher and putting downward pressure on crude,'' said Eric Wittenauer, an energy analyst at A.G. Edwards & Sons Inc. in St. Louis. ``Until you see an up-tick in refinery operations, crude oil will have a hard time rising.

Motiva Enterprises LLC, the refining joint venture between Europe's Royal Dutch Shell Plc and Saudi Arabia's state oil company, reported a malfunction that occurred yesterday at its plant in Port Arthur, Texas. The Port Arthur refinery has a daily processing capacity of 285,000 barrels.

The profit margin, or ``crack'' spread, for turning three barrels of crude oil into two barrels of gasoline and one of heating oil jumped 5.5 percent to $22.546, the highest since Sept. 29, 2005, based on closing futures prices in New York.

Refineries in Texas, California, Pennsylvania, Colorado, Ontario and Delaware have had to trim output over the past two months. The closure of Valero Energy Corp.'s McKee refinery near Sunray, Texas, has contributed to the increase in supplies in Cushing. Increasing stockpiles in this oil hub have depressed the price of oil in New York compared with Brent oil.

``Prices here are depressed because the tanks in Cushing are full as a result of refinery problems,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``There's nowhere to put the oil. If someone could figure a way to ship the oil stuck in Cushing to the U.K. they would make a fortune.''

Uranium Enrichment

Iranian President Mahmoud Ahmadinejad said today that his country has begun enriching uranium on an industrial scale, stepping up defiance against the United Nations.

``Iran has succeeded in the nuclear-fuel-cycle development to attain production at an industrial level,'' Ahmadinejad said today at a ceremony at the Natanz uranium-enrichment site. He repeated that nuclear-fuel production was Iran's ``undeniable right'' and referred to ``a few powerful governments imposing their will on the rest,'' according to a broadcast of the speech.

The United Nations Security Council gave Iran 60 days from March 24 to suspend enrichment. The country already has ignored three UN deadlines to shut down production of the nuclear fuel. The UN demands were in response to allegations by the U.S. and some of its allies that Iran is using the development of nuclear power to disguise a weapons program. Iran denies that.