Barge blast shocks oil price - `Overreaction' attributed to terrorism fear

www.chicagotribune.com By Melita Marie Garza Tribune staff reporter Published February 22, 2003

Already on tenterhooks over the prospect of war with Iraq and possible terrorist attacks, U.S. energy markets spiked sharply early Friday after a fuel barge exploded at an Exxon Mobil Corp. storage facility near Manhattan. The incident also jolted the stock market, helping to send the Dow Jones industrial average down as much as 60 points in early trading. Both the Dow and the energy futures market recovered after authorities said there were no indications that the blast was caused by terrorism. "There was definitely an overreaction," said Mark Baxter, director of the Maguire Energy Institute at Southern Methodist University in Dallas. "First there were news reports that the explosion had occurred at a refinery, then before long you saw a picture of the Empire State Building with the smoke in the background," Baxter said. "Our first concern was: Who planted the bomb?'" Within 10 minutes of the explosion, light sweet crude oil jumped almost 50 cents, to $35.95 a barrel, on the New York Mercantile Exchange. Heating oil futures contracts gained about 3 cents within minutes, jumping to $1.12 per gallon by 10:25 a.m. Phil Flynn, vice president and senior analyst with Alaron Trading Corp. in Chicago, noted that prices already were on their way up before news of the barge explosion hit. "Then the traders down in the pits began to see the smoke billowing out across the skyline," said Flynn, noting that the dramatic footage sent prices up before details of the incident were known. Traders also were nervous because the terminal is from time to time responsible for up to 25 percent of the physical deliveries traded on the NYMEX. Exxon Mobil officials said the fire and explosion occurred as 100,000 barrels of unleaded gasoline were being unloaded from a barge. Two barge workers, employed by Bouchard Transportation Co., were killed in the explosion, while another worker, employed by Exxon Mobil, was admitted to the hospital with burns, officials said. To some degree, the market's reaction was considered understandable. The country has been on an "orange" or high, security alert since last week. Tom Ridge, the homeland security chief, has sent citizens off on a duct tape and plastic sheeting buying binge, urging them to stockpile such items to protect against a possible bioterrorist attack. In addition, energy infrastructure, including U.S. oil refineries, has been singled out as a possible terrorist target. Some initial news reports characterized Friday's incident as a refinery explosion, though none of the nation's 150 refineries are located north of New Jersey. Amid these jitters, the crude oil market has been on a march upward, putting pressure on already vulnerable sectors of the U.S. economy and raising prices at gasoline pumps. U.S. crude oil supplies are hovering perilously close to a 270 million-barrel minimum inventory level the federal government said must be maintained in order to insure uninterrupted supplies to consumers. The tight market is the result of a complex confluence of circumstances. Crude oil supplies have been squeezed since Dec. 2, when a general strike in Venezuela seriously cut exports. In addition, the government has been stockpiling record amounts of oil in the Strategic Petroleum Reserve, leaving less for commercial inventories. Tom Kloza, with the Oil Price Information Service, said dramatic footage of billowing smoke and circling helicopters, combined with inaccurate initial news reports, fed the emotional reaction of the futures markets. "In the grand scheme of things, this is not a big deal for prices," Kloza said. "On Fridays, markets have been prone to go up, but it has had more to do with worries overseas. "Monday, we are going to be looking back at this and say: Wow, that was a spectacular fire, but it really has very little to do with what is going to happen to prices,'" he said. The 100,000 barrels of gasoline lost Friday represent a minuscule portion of the 211.2 million barrels of gasoline in U.S. inventories. Still, "If you look at the big picture, it's still a big deal because it shines a spotlight on the bigger issues," said Flynn, of Alaron Trading. "We dodged a bullet here. If this had been a real refinery fire, it could have been a major problem. The whole country is running on fumes."