Oil Is Steady After Advancing on Tropical Storm, Iran Tensions

By Mark Shenk

July 22 (Bloomberg) -- Crude oil was little changed after rising from a six-week low yesterday as a tropical storm entered the Gulf of Mexico, and Iran, the world's fourth-biggest producer, resisted demands to suspend nuclear research.

Tropical Storm Dolly may become a hurricane as it moves toward the U.S.-Mexican border, the U.S. National Hurricane Center said. Iran risks ``further isolation'' if it doesn't respond in two weeks to an offer of economic aid in return for ending uranium enrichment, U.S. officials said July 19.

``We're watching Tropical Storm Dolly because of the strong possibility that it will strengthen and head into the Gulf,'' said Tom Bentz, a broker at BNP Paribas in New York. ``The meeting with Iran ended in a stalemate. There were hopes that tensions might subside. Instead they are being cranked up.''

Crude oil for August delivery fell 34 cents to $130.70 a barrel at 8:55 a.m. Sydney time on the New York Mercantile Exchange. Futures are up 74 percent from a year ago.

Yesterday, futures rose $2.16, or 1.7 percent, to settle at $131.04 a barrel. It was the first increase in five days.

Oil settled at $128.88 on July 18, the lowest close since June 5. Prices dropped 11 percent last week, the most in more than three years, on signs of slowing global economic growth and faltering U.S. fuel demand.

A hurricane watch was issued for the Texas coastline from Brownsville to Port O'Connor yesterday by the Miami-based hurricane center after Dolly moved over Mexico's Yucatan Peninsula. Parts of Mexico were also under a hurricane watch.

No Evacuation

Petroleos Mexicanos, Mexico's state oil company, produces about 1.07 million barrels of oil a day in the Bay of Campeche, which is south of the projected track of the storm. Dolly isn't expected to reach company platforms after it enters the Gulf, Petroleos Mexicanos spokesman Javier Delgado Pena said in a telephone interview yesterday.

Dolly's center was about 420 miles (680 kilometers) east- southeast of the Rio Grande valley along the Texas-Mexico border, and heading west-northwest above the area's warm waters, the U.S. National Hurricane Center said at 4 p.m. central time. Sustained winds were about 50 miles per hour.

``It's hard to talk about a safe storm track, but this one is relatively benign when it comes to oil infrastructure,'' said Tim Evans, an energy analyst for Citi Futures Perspective in New York. ``Dolly is moving too far north to bother Mexican production in the Bay of Campeche. It appears to be moving too far south to hit U.S. refining capacity or platforms.''

The northern Gulf of Mexico accounts for about 25 percent of U.S. oil production.

Hair-Trigger Market

U.S. crude oil and fuel production plunged as 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.

``This market is on a hair trigger as we look at the storm path projections and this will remain the case throughout the season,'' said John Kilduff, senior vice president of risk management at MF Global Inc. in New York. ``In the post-Katrina world oil companies are going to be proactive with evacuations and other preparations when a storm approaches.''

Royal Dutch Shell Plc, Europe's biggest oil company, has started evacuation of personnel from oil platforms in the Gulf of Mexico because of the approaching storm. The company removed about 125 people from its operations in the western part of the Gulf July 20, and is planning to evacuate another 60 yesterday, it said in an e-mailed statement.

Shell's Plans

``No further evacuations are planned at this time after yesterday, and based on current information and forecast we do not expect any impact on Shell-operated production in the Gulf of Mexico,'' The Hague-based Shell said.

Exxon Mobil Corp., the world's biggest energy company, said it was preparing platforms for heavy rain and high winds.

No oil or natural-gas production has been shut as a result of the approaching storm, the Minerals Management Service, part of the U.S. Interior Department, said yesterday.

The North Atlantic hurricane season runs from June through November. September is historically the busiest month for storms and hurricanes.

Iran snubbed Western efforts to get it to suspend nuclear enrichment at talks in Geneva on July 19, setting the stage for new sanctions if the Middle East's second-largest oil producer doesn't respond to an existing proposal within two weeks.

``Iran now has a clear choice to make,'' U.K. Prime Minister Gordon Brown said in a speech to the Knesset in Jerusalem yesterday. It must ``suspend its nuclear program and accept our offer of negotiations or face growing isolation and the collective response not of one nation but of many nations.''

Brent crude oil for September settlement rose $2.42, or 1.9 percent, to settle at $132.61 a barrel on London's ICE Futures Europe exchange. Prices climbed to a record $147.50 on July 11.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.