Oil Little Changed Near 6-Week Low as Hurricane May Miss Fields

By Mark Shenk

July 23 (Bloomberg) -- Crude oil was little changed near a six-week low after falling more than $3 a barrel yesterday on forecasts a Gulf of Mexico hurricane will miss fields and as the dollar rebounded against the euro, reducing commodities' appeal.

Oil has declined as Hurricane Dolly moved toward the Texas border with Mexico, avoiding most U.S. Gulf production. The dollar rose on signs that U.S. interest rates may increase. Senate Democrats yesterday cleared the first hurdle for legislation that aims to curb speculation in energy markets.

The move lower had ``dual causes,'' said Brad Samples, commodity analyst for Summit Energy Inc. in Louisville, Kentucky. ``There's a strong move by the dollar, which always puts pressure on energy prices. We aren't worried about Dolly anymore, also putting pressure on prices.''

Crude oil for September delivery rose 16 cents to $128.58 a barrel at 8:30 a.m. Sydney time on the New York Mercantile Exchange. Futures are up 72 percent from a year ago. The August contract expired yesterday after dropping $3.09, or 2.4 percent, to $127.95 a barrel, the lowest settlement price since June 5. Oil is down more than $18 from a record $147.27 on July 11.

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.

Lower Pump Prices

Gasoline for August delivery fell 0.1 cent to $3.1460 a gallon in New York at 8:26 a.m. Sydney 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.

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.

Dolly strengthened over the Gulf of Mexico, and became a hurricane after the close of Nymex floor trading. Offshore fields in the Gulf are responsible for about 25 percent of U.S. oil production.

The storm's maximum sustained winds strengthened to almost 75 miles (120 kilometers) per hour, the U.S. National Hurricane Center said in an advisory on its Web site at 4 p.m. Houston time. Dolly was 165 miles southeast of Brownsville, Texas, and moving northwest near 10 miles per hour.

Katrina and Rita

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.

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.

Brent crude oil for September settlement dropped $3.06, or 2.3 percent, to settle at $129.55 a barrel yesterday on London's ICE Futures Europe exchange, the lowest since June 5.

The dollar traded at $1.5778 per euro at 6:07 a.m. in Tokyo, after rising 0.9 percent yesterday and touching $1.5758, the strongest level since July 10. The dollar was at 107.355 yen, after advancing 0.8 percent. The yen traded at 169.40 per euro, following a less than 0.1 percent increase.

Speculation Measure

The U.S. currency rose as Treasury Secretary Henry Paulson predicted lawmakers will pass a bill this week to shore up confidence in Fannie Mae and Freddie Mac. Federal Reserve Bank of Philadelphia President Charles Plosser said the Fed should raise interest rates ``sooner rather than later'' to lower inflation.

Legislation introduced by Senate Democrats 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 fact that they were unanimous is surprising,'' said Sarah Emerson, managing director of Energy Security Analysis Inc., a consulting firm in Wakefield, Massachusetts. ``It will make the market more transparent, which is a good first step. There doesn't appear to be anything in the legislation that is so onerous that it would hurt the futures market.''

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.

``This has the potential to move some people out of the market,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.

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