Oil Rises in New York as Gustav Threatens U.S. Gulf Platforms

By Mark Shenk and Margot Habiby

Aug. 29 (Bloomberg) -- Crude oil rose as producers including ConocoPhillips, Royal Dutch Shell Plc and BP Plc evacuated rigs before the arrival of Gustav, forecast to become the worst Gulf of Mexico hurricane since Katrina.

Gustav, which was crossing Jamaica as a tropical storm, is forecast to reach Louisiana next week, passing through a region home to a quarter of U.S. oil output and 14 percent of natural gas production. It's expected to reintensify into a hurricane today, according to the National Hurricane Center.

``If the storm remains on this track, prices will start to rise again,'' said Tom Bentz, a broker at BNP Paribas in New York. Oil fell more than $2 a barrel yesterday after the International Energy Agency said it would tap strategic stockpiles if Gustav disrupts Gulf energy production.

Crude oil for October delivery rose 62 cents, or 0.5 percent, to $116.21 a barrel at 8:40 a.m. Sydney time on the New York Mercantile Exchange. Prices are up 58 percent from a year ago. Oil has dropped 21 percent from a record $147.27 reached on July 11. Futures fell $2.56, or 2.2 percent, to $115.59 a barrel yesterday.

There is a 70 percent to 75 percent chance of the storm reaching the Gulf, by which time it will likely be a Category 3 hurricane, according to Weather Insight. A Category 3 hurricane has winds of at least 111 miles (179 kilometers) an hour and is classified as a ``major'' hurricane.

The Gulf of Mexico is home to 26 percent of U.S. oil output and 14 percent of the country's gas production. 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 Katrina and Rita.

Storm's Threat

Gustav may halt 1.27 million barrels a day of crude oil production if it strikes the Central Gulf Coast, Angela Montoya, a meteorologist at Weather Insight, LP, in Houston said.

The IEA coordinated the release of oil and fuel supplies among its 27 members after hurricanes Katrina and Rita struck the U.S. Gulf Coast in 2005. That response included the release of European gasoline supplies for shipment to the U.S., as well as crude oil and other refined products. The Paris-based agency was set up in 1974 in response to the Arab oil embargo.

``The IEA is making the right soothing noises to calm the market,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ``Anyone who follows the industry would expect them to release supplies if there was a great deal of damage, but this is an emotional market and words can do a lot.''

Gustav is the seventh named storm of the Atlantic hurricane season, which runs from June 1 through Nov. 30. The National Oceanic and Atmospheric Administration's forecasters predict 14 to 18 named storms will develop this year.

Brent crude oil for October settlement fell $2.05, or 1.8 percent, to settle at $114.17 a barrel on London's ICE Futures Europe exchange yesterday.

To contact the reporters on this story: Mark Shenk in New York at mshenk1@bloomberg.net; or Margot Habiby in Dallas at mhabiby@bloomberg.net.