Oil Rises as Mexican Field Output Falls, Hurricane Strengthens

By Christian Schmollinger

July 8 (Bloomberg) -- Crude oil rose in New York after production at Mexico's biggest field declined and the first hurricane formed in the Atlantic Ocean this year, raising concern output may be disrupted.

Petroleos Mexicanos, Mexico's state-owned oil company, reduced the amount of crude oil it supplies to Texas refineries operated by Royal Dutch Shell Plc and Valero Energy Corp. as falling production curbs exports. In the Atlantic, Bertha has intensified into a ``major'' Category 3 storm with winds of 120 miles per hour, the U.S. National Hurricane Centre said.

``It's not necessarily Bertha that's scaring people but we had two very weak hurricane seasons following 2005 so everyone is waking up and saying this could be a factor again,'' said Jonathan Kornafel, a director for Asia at Hudson Capital Energy in Singapore. ``Cutting exports is a reaction to the fact that Mexican production is deteriorating so quickly.''

Crude oil for August delivery rose as much as $1.07, or 0.8 percent, to $142.44 a barrel on the New York Mercantile Exchange. It was at $142.38 a barrel at 1:38 p.m. Singapore time. Oil yesterday settled down $3.92, or 2.7 percent, at $141.37 a barrel. It reached a record $145.85 on July 3. Prices have surged 97 percent in the past year.

Tropical cyclones Katrina and Rita closed fields and refineries along the U.S. coast of the Gulf of Mexico in 2005.

Commodities Tumble

Crude oil's decline was part of larger drop in all commodities, which fell the most since March, led by grain futures. The Reuters/Jefferies CRB Index dropped 2.8 percent to 460.23, the biggest since March 19. Corn, soybeans, wheat and cotton plummeted the maximum allowed by U.S. exchanges.

``You had some short-term longs getting out of the market yesterday, some profit-taking,'' said Hudson Capital's Kornafel. ``Now we're seeing a lot of money coming back into the market for second half of the year and a bounce back off the $140 level.''

Output at Mexico's Cantarell field dropped 34 percent in May from a year earlier, the biggest decline since October 1995, according to data compiled by the government and Bloomberg. That was when Hurricane Roxanne's 131 miles-per-hour (114-knot) winds shut offshore wells for a week.

Falling production is curbing exports to the U.S., which buys about 80 percent of the oil Mexico sells abroad. Sales to the U.S. declined to 1.07 million barrels a day in May, the lowest since November 1995.

Mexico Cuts

The guaranteed amount of Mayan oil for a Deer Park, Texas, refinery jointly operated with Shell, Europe's biggest oil company, was cut by 15 percent, the Mexico City-based company said in a regulatory filing. Pemex also lowered oil supplies by 5.8 percent to the Port Arthur, Texas, refinery of Valero, the largest U.S. refiner.

Brent crude oil for August settlement gained as much as $1.09, or 0.7 percent, to $142.96 a barrel on London's ICE Futures Europe exchange at 1:37 p.m. Singapore time. Futures reached a record $146.69 on July 3.

Bertha intensified to a maximum sustained wind speed of 120 miles per hour (195 kilometers per hour) at 11 p.m. Miami time, the U.S. National Hurricane Center said in an advisory on its Web site. A tropical storm becomes a hurricane when sustained winds reach 74 miles per hour.

If the storm moves as current computer models predict, it could threaten Bermuda, about 670 miles east of the North Carolina coast, by July 12.

The eye of the hurricane was about 695 miles east-northeast of the northern Leeward Islands, which include Antigua and St. Kitts, and 1,085 miles southeast of Bermuda, the hurricane center said. The storm was moving west-northwest at 12 miles per hour, the center said.

Oil Inventories

U.S. crude-oil supplies probably fell last week as imports declined, according to a Bloomberg News survey of analysts.

Supplies fell 2.1 million barrels in the week ended July 4 from 299.8 million barrels, according to the median of responses by five analysts before an Energy Department report July 9. Supplies dropped 1.98 million barrels in last week's report after analysts forecast a gain.

Gasoline supplies probably gained 700,000 barrels from 210.9 million barrels the week before, the survey showed. Inventories of distillate fuel, including heating oil and diesel, probably rose 1.6 million barrels from 120.7 million the week before.

Refineries probably operated at 89.2 percent of capacity, unchanged from the week before, the survey showed.

To contact the reporter on this story: Christian Schmollinger in Singapore at Christian.s@bloomberg.net