Thursday, August 28, 2008

Oil, Natural Gas Rise as Gustav Threatens U.S. Gulf Platforms

By Grant Smith

Aug. 28 (Bloomberg) -- Crude oil and natural gas rose on a forecast Tropical Storm Gustav will be the most damaging since Hurricane Katrina, forcing Royal Dutch Shell Plc and BP Plc to begin pulling workers from the Gulf of Mexico.

Gustav may strengthen to become a hurricane and reach the Louisiana coast, home to the U.S.'s highest concentration of offshore platforms, on Sept. 1, the National Hurricane Center said. Shell will evacuate 870 workers in the next two days, on top of 400 already moved. Exxon Mobil Corp. is preparing refineries along the coast for storms.

``It's the most dangerous storm of the season,'' said Carsten Fritsch, a Commerzbank AG analyst in Frankfurt. ``The question will be the strength of the hurricane. Some say it will be as serious as Katrina, but that's the worst case scenario.''

Crude oil for October delivery rose as much as $1.10, or 0.9 percent, to $119.25 a barrel on the New York Mercantile Exchange. It traded at $119.14 at 11:34 a.m. London time.

Prices, 66 percent higher than a year ago, have dropped 19 percent from a record $147.27 a barrel on July 11. Oil has gained 3.3 percent since Gustav formed in the Caribbean Sea on Aug. 25.

Natural gas for September delivery gained as much 4.3 percent to $8.755 a million British Thermal units in New York. Gasoline futures rose 0.6% to $3.0855 a gallon.

The storm may become a ``hurricane rivaling Rita and Katrina,'' Joe Bastardi of in State College, Pennsylvania, said in an outlook yesterday.

Halt Production

Gustav may halt 1.2 million barrels a day of crude oil production if it strikes the U.S. Central Gulf Coast, CNBC reported, citing forecaster Weather Insight. There is a 70 to 75 percent chance of it reaching this region, by which time it will likely be a Category 3 hurricane, according to Weather Insight.

The system was 80 miles east of Kingston, Jamaica, and heading southwest at 8 mph, the National Hurricane Center said in its latest advisory. It's expected to turn west-northwest tomorrow and regain hurricane strength over the next 48 hours.

``If stocks were at high levels, the threat of a supply disruption wouldn't matter as much,'' said John Hall, managing director of London-based consultants John Hall Associates Ltd. ``But inventories need to build up further in the OECD, and in the U.S. they're low.''

Energy producers planned to evacuate ``several thousand'' employees from offshore rigs yesterday because of the storm, said Ted Falgout, the director of Louisiana's Port Fourchon. Exxon has initiated ``preliminary safety procedures'' at its Gulf Coast refineries, the company said on its Web site.

The Gulf accounts for about 14 percent of U.S. gas output. The coast along Louisiana and Texas is home to 42 percent of U.S. refining capacity.

Hurricane Katrina

In August and September 2005, U.S. crude oil and fuel production plunged and prices rose to records when hurricanes Katrina and Rita struck the Gulf Coast. Katrina closed 95 percent of offshore output in the region. Almost 19 percent of U.S. refining capacity was idled because of damage and blackouts caused by the storms.

Prices also rose today after a government report showed that U.S. gasoline supplies dropped for a fifth week. Gasoline stockpiles fell 1.18 million barrels to 195.4 million barrels, the Energy Department said in its weekly report.

Crude-oil inventories dropped 177,000 barrels to 305.8 million barrels, the report showed. Expectations were for a gain of 1.1 million barrels. Imports fell 9.2 percent to 9.9 million barrels a day.

Brent crude oil for October settlement rose as much as $1.13 cents, or 1 percent, to $117.35 a barrel on London's ICE Futures Europe exchange. The contract was at $116.89 at 11:19 a.m. London time.

source: Oil, Natural Gas Rise as Gustav Threatens US Gulf Platforms