Oil Trades Near Six-Week Low as Hurricane Dolly Misses Fields

By Nesa Subrahmaniyan

July 23 (Bloomberg) -- Crude oil traded near a six-week low after falling 2.4 percent yesterday as Hurricane Dolly will miss fields in the Gulf of Mexico and the dollar rebounded, curbing investments in commodities.

Dolly is headed for northern Mexico and southern Texas. 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 and Senate Democrats cleared the first hurdle for legislation to curb energy market speculation.

``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.''

Crude oil for September delivery was at $128.10 a barrel, down 32 cents, at 10:22 a.m. Singapore time on the New York Mercantile Exchange. Futures are up 71 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.

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.

Pump Prices

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 0.44 cent to $3.1426 a gallon in New York at 7:44 a.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 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.

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.

Dollar Gains

Brent crude oil for September settlement traded at $129.08 a barrel, down 47 cents, at 10:34 a.m. Singapore time on London's ICE Futures Europe exchange. 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 $1.5791 at 9:42 a.m. in Singapore, after rising 0.9 percent yesterday and touching $1.5758, the strongest level since July 10. The dollar was at 107.32 yen, after advancing 0.8 percent. The yen traded at 169.40 per euro, following a less than 0.1 percent increase.

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.

Curb Speculation

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 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.

Supplies of crude oil declined 600,000 barrels in the week ended July 18 from 296.9 million, according to the median of responses by 13 analysts before an Energy Department report tomorrow. Ten forecast a drop, two predicted a gain and one didn't expect the amount in storage to change.

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

To contact the reporter on this story: Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net.