Oil Steady After Rising as Gustav Threatens U.S. Gulf Platforms

By Mark Shenk

Aug. 28 (Bloomberg) -- Crude oil was little changed in New York after rising on speculation Tropical Storm Gustav will become the most damaging hurricane since Katrina as it moves toward production platforms in the Gulf of Mexico.

Gustav may become a ``destructive hurricane rivaling Rita and Katrina,'' which shut refineries and platforms in the Gulf and sent oil prices to a record, Joe Bastardi of AccuWeather.com in State College, Pennsylvania, said yesterday. Gustav was packing sustained winds of about 50 miles (85 kilometers) an hour, the National Hurricane Center said at 5 p.m. Miami time.

``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 11 cents to $118.26 a barrel at 8:44 a.m. Sydney time on the New York Mercantile Exchange. Prices are up 65 percent from a year ago. Futures have dropped 20 percent since touching a record $147.27 a barrel on July 11. Yesterday, oil rose $1.88, or 1.6 percent, to $118.15.

Natural gas for October delivery fell 2 cents to $8.588 per million British thermal units after rising 22.1 cents, or 2.6 percent, to $8.608 per million British thermal units yesterday in New York.

Rig Evacuations

Energy producers will evacuate ``several thousand'' employees from offshore rigs yesterday because of the storm, said Ted Falgout, the director of Louisiana's Port Fourchon. Almost 20,000 workers are on offshore platforms, about one- quarter of which are needed to maintain output, Falgout said in an interview.

``Most companies are waiting until Friday to decide whether they need to shut down production,'' Falgout said. ``If you look at models showing the storm's track, it should scare you.''

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 (150 kilometers) southeast of Guantanamo, Cuba, 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.

``If the storm does intensify to a Category 4 or 5 and stays on its current path, you will see a definite impact on the offshore Gulf production,'' said Dominick Chirichella, senior partner at the Energy Management Institute in New York. ``A lot of rigs will shut down as they move essential personnel off.''

U.S. Inventories

Prices also rose after a government report showed that U.S. gasoline supplies dropped for a fifth week. Gasoline stockpiles fell 1.18 million barrels to 195.4 million barrels, the Energy Department said in its weekly report. A drop of 2.45 million barrels was expected, according to the median of 12 analyst responses in a Bloomberg News survey.

Crude-oil inventories dropped 177,000 barrels to 305.8 million barrels, the report showed. Supplies of distillate fuel, a category that includes heating oil and diesel, climbed 57,000 barrels to 132.1 million barrels.

Gasoline for September delivery climbed 9.75 cents, or 3.3 percent, to $3.0672 a gallon in New York, the highest settlement since Aug. 1. Heating oil for September delivery increased 5.18 cents, or 1.6 percent, to settle at $3.2617 a gallon.

OPEC Meeting

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. The IEA, which advises 27 developed nations on energy policy, was set up in 1974 in response to the Arab oil embargo.

``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 $1.59, or 1.4 percent, to settle at $116.22 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.