Oil Slides, Gasoline Gains as Hurricane Sandy Nears U.S.

Crude fell for the first time in three days in New York while gasoline rose as refineries curbed operations before Hurricane Sandy strikes the U.S. East Coast.

West Texas Intermediate futures slid as much as 1.1 percent, while prices of the motor fuel advanced as much as 1.9 percent. Sandy will probably make landfall tomorrow, according to a National Hurricane Center advisory. Phillips 66, NuStar (NS) Energy LP and Hess Corp. (HES) said they are shutting or reducing output at New Jersey refineries as a precaution against the storm that may become the worst to hit the region in 100 years.

“The crude supply situation has improved, and high inventories are capping prices,” said Michael Poulsen, an analyst at Global Risk Management in Middelfart, Denmark, who predicts that Brent will trade from $105 to $110 a barrel next month. “But we should watch out for Super-Storm Sandy, as refineries are being shut while the storm rages.”

WTI for December delivery dropped as much as 94 cents to $85.34 a barrel in electronic trading on the New York Mercantile Exchange and was at $85.96 at 12:59 p.m. London time. Prices are down 13 percent this year.

Brent for December settlement advanced 52 cents to $110.07 a barrel on the London-based ICE Futures Europe exchange. The front-month European benchmark grade’s premium over the WTI contract was at $24.05.
Frankenstorm Looms

Sandy’s maximum sustained winds increased to 85 mph, up from 75 mph earlier, the hurricane center said in an advisory at 5 a.m. New York time. It was centered about 285 miles east of Cape Hatteras, North Carolina, and about 385 miles south- southeast of New York City, moving north at 15 mph. Sandy is forecast to converge with two other systems, creating a phenomenon the National Weather Service dubbed Frankenstorm.

“The primary consideration would be disruption to refinery infrastructure,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “That has the potential to disrupt markets and cause local and regional product shortages.”

Combined trading volumes for all of the monthly WTI contracts on the Nymex were at 55,037 contracts at 12:52 p.m. London time, compared with this year’s full-day average of 576,686, according to Bloomberg calculations using data from the exchange.

New York, New Jersey 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.
Refineries Shut

Phillips (PSX) is in the process of shutting its 238,000 barrel- a-day Bayway refinery and expects the plant to be fully idled by early today. Hess said yesterday it would begin cutting rates at its 70,000 barrel-a-day Port Reading plant at 6 p.m. local time, while NuStar said Oct. 27 that its 74,000 barrel-a-day Paulsboro asphalt refinery would be shut by early today.

Gasoline in New York was up 3.22 cents at $2.7313 a gallon after rising as much as 5.09 cents to $2.75. Prices settled at $2.6991 a gallon on Oct. 26, the highest in more than a week.

The New York Mercantile Exchange will close floor trading today because of Sandy, CME Group Inc., its owner, said in an e- mailed statement. Electronic trading of energy and other Nymex products will be unaffected.

Hedge funds reduced bets on rising oil prices for the fourth time in five weeks, cutting net-long positions by 17 percent in the seven days ended Oct. 23, the Commodity Futures Trading Commission’s Commitments of Traders report on Oct. 26 showed. It was the least since the week ended July 31.
Hedge Funds

In London, hedge funds and other money managers reduced bullish bets on Brent crude by the most since June in the week ended Oct. 23, according to data from ICE Futures Europe.

Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 94,007 lots, the London-based exchange said today in its weekly Commitment of Traders report. That’s down by 25,569 contracts, or 21 percent, from 119,576 last week, the biggest cut since June 5 and the lowest level since August.

Oil in New York has technical support along its lower Bollinger Band, around $85.83 a barrel today, according to data compiled by Bloomberg. Futures on Oct. 26 traded below this indicator before settling above it. Buy orders tend to be clustered near chart-support levels.

Brent in London will trade in a range of $105 to $110 a barrel in the three months ended Dec. 31, according to a forecast by Morgan Stanley. Recent price declines are related to macro-economic concerns and not fundamental changes in the market, Hussein Allidina, the bank’s New York-based head of commodities research, said in a note today.