Oil Rises as Gustav Threatens U.S. Gulf of Mexico Platforms

By Mark Shenk

Aug. 29 (Bloomberg) -- Crude oil headed for its biggest weekly gain in almost two months and natural gas rose as producers evacuated rigs before the arrival of Gustav, forecast to be the largest hurricane in the Gulf of Mexico since Katrina.

Royal Dutch Shell Plc and ConocoPhillips started pulling workers from Gulf of Mexico platforms in a region that pumps 26 percent of U.S. oil and 14 percent of the nation's gas. Louisiana officials said they will start evacuating residents today in two parishes around New Orleans that house refineries owned by Exxon Mobil Corp. and Valero Energy Corp.

``Prices are higher on the prospect that Hurricane Gustav will strike the heart of the oil and natural gas production region in the Gulf of Mexico,'' said Addison Armstrong, director of market research at TFS Energy LLC in Stamford, Connecticut. ``If Gustav strikes near the Texas-Louisiana border, several refiners could be knocked out for a number of weeks.''

Crude oil for October delivery rose $2.53, or 2.2 percent, to $118.12 a barrel at 9:02 a.m. on the New York Mercantile Exchange. Futures are up 3.1 percent this week, the biggest gain since the week of July 4. Oil is up 61 percent from a year ago.

Natural gas for October delivery rose 18.2 cents, or 2.3 percent, to $8.232 per million British thermal units in New York.

Shell is evacuating workers from its Gulf of Mexico operations. The company pulled out 350 offshore workers yesterday and 400 the previous day, Shell said in a statement. The remaining workers will be withdrawn today and tomorrow.

Gulf Platforms

Gulf platforms produced 1.3 million barrels of oil and 7 billion cubic feet of gas a day in June, according to the Minerals Management Service. States along the Gulf, including Louisiana and Texas, contain 56 operable refineries that account for about 47 percent of U.S. refining capacity, according to the Energy Department.

Katrina, which reached Category 5, the strongest type of hurricane, closed 95 percent of offshore output in the Gulf of Mexico. Almost 19 percent of U.S. refining capacity was idled because of damage and blackouts caused by hurricanes Katrina and Rita in 2005.

Gasoline for September delivery climbed 5.33 cents, or 1.8 percent, to $3.0747 a gallon in New York.

Pump prices rose for the first time since July 19, according to AAA, the nation's largest motorist organization. Regular gasoline, averaged nationwide, increased 0.9 cent to $3.669 a gallon, AAA said today on its Web site. Prices reached a record $4.114 a gallon on July 17.

Gustav packed sustained winds of 65 miles (105 kilometers) an hour and was centered near the western tip of Jamaica, 100 miles west-northwest of the capital, Kingston, the U.S. National Hurricane Center said on its Web site at 8 a.m. Miami time.

The forecast shows Gustav making landfall in central Louisiana as a hurricane on Sept. 2, then moving northwest into areas of Louisiana and Texas ravaged by Hurricane Rita three weeks after Katrina devastated New Orleans in 2005.

Brent crude oil for October settlement rose $2.18, or 1.9 percent, to $116.35 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.