Oil Rises on Forecasts That Hurricane May Enter Gulf of Mexico

By Mark Shenk

Aug. 26 (Bloomberg) -- Crude oil rose on forecasts showing that Hurricane Gustav may enter the Gulf of Mexico, home to more than a fifth of U.S. oil production.

Gustav's sustained winds rose to 90 miles (145 kilometers) per hour, the U.S. National Hurricane Center said in an advisory at 8 a.m. Miami time. Oil fell earlier as the dollar strengthened to a six-month high against the euro, limiting the appeal of commodities as a hedge, and shipments of Caspian Sea crude oil resumed after a pipeline fire.

``We are going to pay close attention to every change in the storm's forecast,'' said Tom Bentz, a broker at BNP Paribas in New York. ``It's a battle between the dollar and the weather for dominance in this market.''

Crude oil for October delivery rose 89 cents, or 0.8 percent, to $116 a barrel at 9:03 a.m. on the New York Mercantile Exchange. Prices are up 63 percent from a year ago.

Brent crude oil for October settlement rose 52 cents, or 0.5 percent, to $114.55 a barrel on London's ICE Futures Europe exchange.

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 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 hurricanes.

The euro tumbled against the dollar after a report showed German business confidence dropped in August by more than economists forecast. The European currency declined 0.8 percent to $1.4628 in New York, from $1.4754 yesterday. It touched $1.4571, the lowest level since Feb. 14.

Two tankers at the Turkish port of Ceyhan are loading crude pumped through the Baku-Tbilisi-Ceyhan pipeline for the first time since the 1 million-barrel-a-day link was shut by a fire on Aug. 5.

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