Crude Oil Falls as Hurricane Dolly Misses Fields, Dollar Gains

By Christian Schmollinger and Nesa Subrahmaniyan

July 23 (Bloomberg) -- Crude oil fell for a second day in New York after forecasters expect Hurricane Dolly to miss fields in the Gulf of Mexico and the dollar rebounded, curbing investments in commodities.

Dolly is headed for northern Mexico and southern Texas, and the dollar gained against the euro on signs U.S. interest rates may increase. Oil futures have declined more than 15 percent from a record $147.27 a barrel on July 11 as U.S. gasoline use fell for a 13th consecutive week.

``There's a sense of relief from a hurricane track that keeps the Gulf oil production in pretty good shape,'' said Gerard Burg, energy and minerals economist with National Australia Bank Ltd. in Melbourne. ``We've seen that prices near $150 were near the top of what consumers are willing to accept.''

Crude oil for September delivery fell as much as 87 cents, or 0.7 percent, to $127.55 a barrel, and traded at $127.82 at 1:55 p.m. Singapore time on the New York Mercantile Exchange. Futures are up 71 percent from a year ago. The August contract expired yesterday after declining 2.4 percent to $127.95 a barrel, the lowest settlement price since June 5.

``That's been a realization to the market that prices reached the top of what could be accepted in the short term,'' said National Australia's Burg.

`Bears in Control'

The number of outstanding oil futures in New York dropped to the lowest in 17 months as oil companies, refiners and institutional investors exited the market. Open interest fell 2.6 percent July 21 to 1.23 million contracts on the Nymex, according to data from the exchange.

``The bears have taken control for now and there are increasing worries about demand growth,'' said Victor Shum, a senior principal at Purvin & Gertz Inc. in Singapore. ``The market is very U.S.-centric, and while the bill on speculation is nebulous, it may still take some people out of the market.''

U.S. gasoline demand fell 3.3 percent last week from a year ago, the 13th consecutive weekly decline, as Americans react to record pump prices by driving less, a MasterCard Inc. report yesterday showed.

Gasoline for August delivery fell 2.11 cents to $3.1259 a gallon in New York at 12:20 p.m. Singapore time. Yesterday, it dropped 7.01 cents, or 2.2 percent, to $3.147, the lowest close since May 8. Futures reached a record $3.631 a gallon on July 11.

Pump prices are following changes in futures. Regular gasoline, averaged nationwide, fell 1.4 cents to $4.055 a gallon, AAA, the nation's largest motorist organization, said yesterday on its Web site. Pump prices reached a record $4.114 a gallon on July 17.

Hurricane Impact

Dolly strengthened over the Gulf of Mexico and became a hurricane. Offshore fields in the Gulf are responsible for about 25 percent of U.S. oil production. Sustained winds strengthened to 80 miles (1,320 kilometers) per hour, the U.S. National Hurricane Center said in an advisory at 10 p.m. Houston time.

The storm is traveling northwest and the eye is expected to make landfall about midday tomorrow.

Oil producers shut about 4.7 percent of production in the U.S. Gulf of Mexico, as they evacuated personnel from 49 platforms and six rigs in preparation for the storm, the government's Minerals Management Service said yesterday.

Petroleos Mexicanos, the third-largest supplier of crude to the U.S., evacuated 66 workers from an oil platform in the western Gulf of Mexico.

U.S. crude oil and fuel production plunged and prices rose to records when hurricanes Katrina and Rita shut refineries and platforms as they struck the Gulf of Mexico coast in August and September 2005. Katrina shut 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 hurricanes.

Dollar Gains

Brent crude oil for September settlement fell as much as $1.20, or 0.9 percent, to $128.35 a barrel on London's ICE Futures Europe exchange. It was at $128.86 a barrel at 2:05 p.m. Singapore time.

Yesterday, it dropped $3.06, or 2.3 percent, to settle at $129.55 a barrel yesterday, the lowest since June 5.

The dollar traded near a two-week high against the euro at $1.5795 at 12:07 p.m. in Singapore, after rising 0.9 percent yesterday and touching the strongest level since July 10.

Senate Democrats cleared the first hurdle for legislation to curb energy market speculation. Legislation won approval to proceed to debate, in a 94-0 vote yesterday. Democrats said the measure could reduce oil prices as much as 50 percent.

The legislation requires the Commodity Futures Trading Commission to impose limits on speculative trading in oil and natural gas futures markets. It also requires more reporting in energy markets to prevent market manipulation.

U.S. crude-oil stockpiles probably fell last week as near- record prices and low profit margins discouraged buying by refiners, according to a Bloomberg News survey of analysts.

The Energy Department is scheduled to release its weekly report tomorrow at 10:35 a.m. in Washington.

To contact the reporters on this story: Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net; Christian Schmollinger in Singapore at christian.s@bloomberg.net.