Note the last two paragraphs:

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NYMEX crude hits $22 midday on Caracas, mogas hot

NEW YORK, Aug 30 (Reuters) - Crude oil futures on the New York Mercantile Exchange (NYMEX) moved sharply higher midday Monday in bullish reaction to three key oil producers' resolve to keep production limits in place until March next year, traders said.

Crude oil for October delivery rose as high as $22.08 a barrel, up 81 cents on the day and traded at $21.96, up 69 cents at 1:17 p.m. (1717 GMT).

Analysts said front month crude must take out $22.10/22.12 resistance before a retest of the $22.16 chart high on August 20 was possible.

Reports of U.S. oil refinery problems continued to fuel trade on gasoline futures, also helping keep the market bullish, market participants said.

Front month September gasoline rose to another contract high of 68.30 cents a gallon, jumping 2.19 cents on the day and then fell back to 68.10 cents, up 1.99 cents. It moved to a session low of 65.65 cents in early trade.

Front month September heating oil trailed behind but also turned bullish, hitting a midday peak of 57.55 cents a gallon, up 1.56 cents. It then moved back to 57.35 cents, up 1.36. It has traded as low as 55.60 cents in the morning.

Oil ministers from Saudi Arabia, Venezuela and non-OPEC Mexico met in Caracas on Saturday to assess the world market and discuss price and inventory levels.

In a joint statement after the meeting, the ministers said that, "The stability and sustainability of oil prices requires that oil production cuts be kept in place until the end of March 2000."

The three oil ministers orchestrated oil production cuts, the last having been signed in March, that is credited with bringing about a recovery in oil prices, which had plunged to 12-year lows in December.

Traders and analysts welcomed the outcome of the meeting, saying it was a clear indication that OPEC and its non-OPEC partners would hold the line on production.

In the U.S. refinery front, a fire erupted at Sunoco's 140,000 barrel per day refinery in Toledo, Ohio, cutting production in half, according to published reports.

Traders said problems have also dogged the Chalmette, Louisiana, refinery of Mobil Corp. involving a fluid catalytic cracker. A spokesman declined to comment Monday morning.

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-- Ray (ray@totacc.com), August 30, 1999

Answers

If you are insinuating the refinery problems are y2k related -that's a stretch. I'm a former refinery rep that's traded oil futures for 10 years. Refinery units hafta go down for maintenance every couple years. The 'turnarounds' are done in the 'shoulder seasons' spring and fall because of peak gasoline demand in the summer and heating oil demand in the winter. By late Aug & early Sept, very high temp and pressure conversion units (octane enhancing) have been run long and hard all summer. There's always fires and probs in this seasonal time frame. For tangible evidence of this NYMEX gasoline has rallied 13 of the last 14 years in Aug and Sept - a combination of hurricane threats and operational problems. It would be unusual if there weren't some US refineries sputtering.

Of course this year is different. I just read an editorial in the Oil and Gas Journal entitled "The Real Y2k Threat" that focused on all the premillenium hoarding thats inevitable. Now there's a relevant perspective. Just figure if the 125 mil US vehicles, buys an extra 10 gallons in late Dec, thats an extra 30 million barrels of demand. This does not account for all the secondary storage that will get filled or, in an even bigger panic mode -international- where the oil related y2k threat is probably very real. Get set for an extra 150 to 200 million barrels of demand in late Dec which would equate to something much bigger than the disruptions that occurred when Iraq moved into Kuwait and about 5.5 million bls/ day was embargoed. Add some third world y2k oil production problems and we're in for some extensive oil patch fireworks even if the US oil industry is completely compliant.

-- Downstreamer (downstream@bigfoot.com), August 30, 1999.

Downstreamer, here is what I do KNOW.

y2k problems will NEVER be reported as such by the company experiencing them.

Crude oil prices have DOUBLED since last fall.

There have been more than the average number of refinery problems over the last year.

Ray

-- Ray (ray@totacc.com), August 30, 1999.

Downstreamer commented:

"Add some third world y2k oil production problems and we're in for some extensive oil patch fireworks even if the US oil industry is completely compliant. "

This I presume would be your BEST CASE scenario!!

Ray

-- Ray (ray@totacc.com), August 30, 1999.

Ray, 1)I agree that oil companies wouldn't telegraph their problems. Futures markets should and would though. 2)Oil prices have doubled from the lowest level in over 50 years in inflation adjusted terms. So what are we to assume? There was no inherent y2k risk last March and now there's twice as much? I'll grant you - PART of this run up has been y2k related. But to truely evaluate the inherent y2k market risk one has to compare late '99 values with early 2000 deliveries. The oil markets are saying nothing catastrophic. 3)What are you basing your 'more refinery fires than normal' statement on? Based on 20 years of watching it, I dont agree. Are you contending its y2k related? The relationship between crude oil economics and products economics is the crack spread (or refiners margin). Gasoline / crude =gas crack. Heating oil / crude = heat crack. These crack spread relationships are normal if not a little below normal as compared to past years even though product demand is at record levels . If there were really a unusally high rash of refinery problems, the products prices would be bid up relative the crude. Further if smart money expected y2k related refinery problems, we'd see this reflected in Jan & Feb cracks much wider than Nov and Dec and past year's averages. I dont fully agree, but the markets are saying its no big risk.

-- Downstreamer (downstream@bigfoot.com), August 30, 1999.

Downstreamer, check this first link out, it has a list of refinery problems over the past few years. It may not be 100 5 accurate but it sure appears to point to a trend:

Another REFINERY EXPLOSION

Oil and Natural Gas: Are They the Real Problems in Y2K?

Ray

-- Ray (ray@totacc.com), August 31, 1999.

And the price of gold will go up as the price of oil rises/availability of oil decreases....

-- Robert A. Cook, PE (Kennesaw, GA) (cook.r@csaatl.com), August 31, 1999.

Robert, this direct relationship between oil prices and gold has existed for many years. Gold is slow in taking off this time around which means when it does it will be a STRONG move upward.

Ray

-- Ray (ray@totacc.com), August 31, 1999.

Ray,

I hafta partially concede a personal oversight. I live in the Midwest. I watch spot markets east of the Rockies and futures markets which specify an Okla delivery on crude and New York Harbor on products. Since there aren't pipelines that go through the Rockies, the West Coast is a segregated, neglected market - predominately independent from other US markets. I'm gonna concede there HAVE been more refinery problems and fires out west this year. But there again the markets reflected it with wholesale prices up over $1.20 and retails over $1.50 for gasoline. East of the Rockies, I'll stick with my normal year in refinery operations contention. West Coast also implemented tougher gasoline specs (CARB RFG) which has contributed to their probs.

-- Downstreamer (downstream@bigfoot.com), August 31, 1999.

Downstreamer, fair enough!!

Ray

-- Ray (ray@totacc.com), August 31, 1999.