Energy Futures Increase as Gustav Threatens U.S. Gulf Platforms

By Mark Shenk

Aug. 27 (Bloomberg) -- Energy futures rose on forecasts that Tropical Storm Gustav will strengthen as it enters the Gulf of Mexico, home to more than a fifth of U.S. oil production.

Gustav may become the strongest storm to reach the Gulf since 2005 when hurricanes Katrina and Rita shut refineries and platforms, AccuWeather.com said on its Web site. Gustav is packing winds of 60 miles (97 kilometers) per hour, the National Hurricane Center said. Prices also rose as traders expected a report will show that U.S. gasoline supplies fell a fifth week.

``The forecasts have Gustav heading for Louisiana, which is very bad news,'' said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut. ``If the storm track holds, this could shape up to be an untimely repeat of Hurricane Katrina. The damage caused by Katrina is in the collective consciousness of everyone who trades.''

Crude oil for October delivery rose $2.34, or 2 percent, to $118.61 a barrel at 10:03 a.m. on the New York Mercantile Exchange. Prices are up 65 percent from a year ago. Futures have dropped 19 percent since touching $147.27 a barrel on July 11, the highest since trading began in 1983.

Natural gas for September delivery rose 34.8 cents, or 4.2 percent, to $8.626 per million British thermal units in New York.

The storm is heading toward waters south of Louisiana, where U.S. offshore oil and gas platforms and pipelines are most concentrated. The Gulf accounts for about 14 percent of U.S. gas output. The coast along Louisiana and Texas is home to 42 percent of U.S. refining capacity.

Gustav was about 90 miles west of the Haitian capital, Port- au-Prince, and forecast to head into the central Gulf of Mexico by Aug. 31, the hurricane center said.

The storm has the potential to grow to a Category 4 hurricane with winds of at least 131 miles per hour by the time it enters the Gulf, said Jim Rouiller, senior energy meteorologist with Planalytics Inc. in Wayne, Pennsylvania.

Katrina and Rita

In August and September 2005, U.S. crude oil and fuel production plunged and prices rose to records when hurricanes Katrina and Rita struck the Gulf Coast. Katrina closed 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 storms.

``Since Katrina there's a greater perception of our vulnerability, especially to a strong storm,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``There's a potential of disruption throughout the industry.''

The hurricane center's track for Gustav takes it toward waters south of Louisiana, where U.S. offshore oil and gas platforms and pipelines are most concentrated.

``I think we are better prepared than before Katrina but we don't need a Katrina-level storm to cause a great deal of damage,'' Lynch said.

U.S. Inventories

Gasoline stockpiles probably fell 2.45 million barrels last week from 196.6 million barrels the week before, according to the median of 12 analyst responses in a Bloomberg News survey. The Energy Department is scheduled to release its weekly report today at 10:35 a.m. in Washington.

Inventories of crude oil probably rose 1.1 million barrels and supplies of distillate fuel, including heating oil and diesel, climbed 600,000 barrels, the survey showed.

Gasoline for September delivery climbed 11.52 cents, or 3.9 percent, to $3.0849 a gallon in New York. Heating oil rose 8.77 cents, or 2.7 percent, to $3.2976 a barrel.

The Organization of Petroleum Exporting Countries, producer of 42 percent of the world's oil, should maintain output when it meets in Vienna next month to help curb prices, International Energy Agency Executive Director Nobuo Tanaka said.

``We wish producers will maintain the current level of production,'' Tanaka said in an interview at an oil conference in Stavanger, Norway. ``The current price level is putting a burden on the global economy.''

Brent crude oil for October settlement rose $2.08, or 1.8 percent, to $116.71 a barrel on London's ICE Futures Europe exchange.

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