ENERGY MARKET REPORT FOR OCTOBER 21, 2005 The IEA's executive director Claude Mandil warned that petroleum supplies may start tightening again as early as next month. He said he was concerned that demand for petroleum products may rebound very soon while repairs to hurricane damaged facilities in the US take much longer to complete. He said there could be a supply gap that may have to be filled by additional releases of oil and oil products from emergency stockpiles held by IEA member countries. He said the IEA has advised its members of the potential for tight supplies in the months ahead, a situation that could worsen further if there is a colder than normal winter. According to a shipping agent, oil exports from Nigeria's 240,000 bpd Brass River tanker terminal were suspended on Friday due to a strike. The strike against a joint venture operated by Italy's Agip started on Wednesday and has also reduced production from some fields. However a source at Agip said the strike action has not affected production and crude loadings by Agip. A meeting with the company's management is scheduled for later on Friday after talks on Thursday failed to resolve the dispute over pay and staff welfare. Oil Movements reported that OPEC oil shipments increased by 120,000 bpd to 24.72 million bpd in the four weeks ending on November 5. The rise is well below the two previous reported four week period increases of 430,000 bpd and 530,000 bpd, respectively. Refinery News Flint Hills Resources is scheduled to start several processing units at its Corpus Christi, Texas refinery following maintenance during the first half of October. The units, including a sulfur unit and a gas oil hydrotreater, will be restarted between October 24 and November 5. PDVSA's 180,000 bpd Puerto La Cruz refinery is scheduled to shutdown its fluid catalytic cracking unit for scheduled maintenance on Saturday. The refinery is expected to shut its gasoline processing unit for a 45 day maintenance period originally planned for mid-September. During the shutdown, the refinery's distillation units are expected to continue processing gasoline normally. Separately, it stated that it resumed operations at a hydroprocessing unit at its Puerto La Cruz refinery after a snag last weekend disrupted operations. Workers, which shut Total's 328,000 bpd Normandy refinery for five weeks, have voted to suspend their strike on Saturday. The suspension will allow negotiations with management to start on Saturday. Earlier, the union called for a suspension of the strike in order to look into proposals made by Total's management. Total has stated that it would take up to a week to restart the units once the strike ends. OPEC's news agency reported that OPEC's basket of crudes fell further to $52.85/barrel on Thursday from $53.64/barrel on Wednesday. Production News The MMS reported that the amount of crude oil shut in the Gulf of Mexico increased to 986,805 bpd, up from 967,734 bpd due to Hurricane Wilma. The cumulative oil production lost since August 26 stood at 64.548 million barrels. Chevron Corp has started evacuating 800 non-essential workers from its Gulf of Mexico oil and gas operations ahead of the Hurricane Wilma. It said production has not been curtailed due to the evacuations. Meanwhile, Total is evacuating non-essential workers from its Matterhorn platform in the Gulf of Mexico. Also the crew at its offshore Virgo platform will finish their shift on Friday and not return until the storm passes. The two platform have been down since Hurricanes Katrina and Rita. Statoil said repairs to the Aasgard B oil, condensate and gas platform in the North Sea following a fire is taking longer than expected, delaying a planned restart from this week. Venezuela's Oil Minister Rafael Ramirez said Venezuela will sell gasoline directly to Colombia's Ecopetrol to help combat fuel smuggling across the border. He said about 27,000 bpd of fuel is smuggled into Colombia from Venezuela every day. The direct sales to Ecopetrol would help stem the smuggling by ensuring more control over the distribution of gasoline in Colombia. Norway's environment ministry will postpone exploration and appraisal drilling at ENI SPA's Goliat field in the Barents Seato review environmental organizations' complaints. Russia's domestic fuel oil and gas oil prices have risen further in September as Russian companies have increased their export volumes to meet strong world demand. Domestic wholesale fuel prices increased by 4.7% in September as exports increased amid lower fuel oil export duties compared with lighter products and crude oil. Meanwhile, its gas oil prices increased by 3.4% on the month in October. Indonesia's Pertamina has cut its November export allocations of term crude and condensate by 10% to 1.054 million barrels to keep supplies for domestic use and limit costly oil imports. Indonesia has cut its crude oil imports in a tender for December arrival by as much as 60% to 1.2 million barrels on the month. China is expected to skip diesel imports for November as stocks increased with record refining rates, despite China waiving its 6% import tariff aimed at increasing fourth quarter purchases. India's state oil companies sold 5.5 million tons of oil products in September, down 8% on the year. Market Commentary The crude market opened 62 cents lower at 59.40 in follow through selling seen in overnight trading after the market breached the 60.00 level during Thursday's session. The market posted an early high of 60.00, where it held some resistance, as the market sold off to a low of 59.15. It seemed to have shrugged off the news of a disruption in Nigerian supplies. According to reports, a strike by Nigeria's unions halted 240,000 bpd Brass River crude exports. The market however bounced off its low and retraced its early losses. The December crude contract breached its resistance at 60.00 and rallied to a high of 60.70 ahead of the close, as traders were reluctant to go home short ahead of Hurricane Wilma. Even though Hurricane Wilma was still on track to spare the oil and natural gas production platforms and rigs in the central Gulf of Mexico, some companies evacuated their non-essential workers. The MMS report also showed an increase in the total amount of crude production shut due to Hurricane Wilma. The crude market settled up 61 cents at 60.63. Volume was light with 171,000 lots booked on the day. Meanwhile, the gasoline market also settled near its high at 163.99, up 2.68 cents. The market posted a low of 158.00 but quickly retraced its losses as it rallied to 163.25. The market later settled in a sideways trading range before further buying ahead of the close, pushed the market to a high of 164.50 on the close. The heating oil market however settled in negative territory at 186.65, down 34 points but it was still well off its low. The heating oil market was trading a 2 cent trading range from 184.00 to 186.00 before it sold off to a low of 183.25. However it erased its losses and rallied to a high of 187.25 ahead of the close. Volumes in the product markets remained light with 30,000 lots booked in the gasoline and 40,000 lots booked in the heating oil market. According to the latest Commitment of Traders report, non-commercials cut their net short positions by 14,452 contracts to 26,118 contracts in the week ending October 18th. The combined futures and options report also showed that non-commercials increased their net long positions by 13,106 contracts to 35,391 contracts on the week. However given the market sharp sell off in the past few days, non-commercials have likely increased their net shorts. Meanwhile, non-commercials in the gasoline market cut their net long position by 125 contracts to 23,738 contracts while non-commercials in the heating oil market increased their net short position by 3,690 contracts to 4,586 contracts on the week. The crude market on Monday may retrace some of Friday's sharp gains early in the session, barring any bullish news over the weekend. It is seen finding support at 60.00, 59.50 followed by its low of 59.15 and 58.45. Meanwhile resistance is seen at 60.70 followed by 61.20 and 62.50.