Oil Rises a Third Day as Hurricane Threatens Gulf of Mexico

By Mark Shenk

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

Gustav may become the first ``major'' hurricane in the Gulf since Hurricane Wilma in October 2005, AccuWeather.com said on its Web site. Gustav is packing winds of 60 miles (97 kilometers) per hour, the National Hurricane Center said in an advisory at 8 a.m. Miami time. Prices also rose as traders expected a report will show that U.S. gasoline supplies fell for a fifth week.

``Nervousness about the storm is moving prices higher,'' said Gene McGillian, an analyst at TFS Energy LLC in Stamford, Connecticut. ``It looks like the storm will be heading straight for New Orleans and will gather strength once it enters the Gulf and gets over than hot water.''

Crude oil for October delivery rose $2.92, or 2.5 percent, to $119.19 a barrel at 9:17 a.m. on the New York Mercantile Exchange. Prices are up 66 percent from a year ago.

Gasoline for September delivery climbed 13.03 cents, or 4.4 percent, to $3.10 a gallon in New York.

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 shut refineries and platforms as they 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.

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 $2.13, or 1.9 percent, to $116.76 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.