Crude Oil, Gasoline Advance as Gustav Cuts Production, Refining

By Gavin Evans and Margot Habiby

Sept. 1 (Bloomberg) -- Crude oil and gasoline futures rose as Hurricane Gustav approached the U.S. Gulf coast, halting most regional oil and gas output and shutting local refineries.

Gustav, about 215 miles (350 kilometers) south-southeast of the Mississippi River mouth, will make landfall along the Louisiana coast later today as a ``major'' hurricane, according to the U.S. National Hurricane Center. Wind and sea conditions have reduced the chances of ``significant intensification,'' the center said.

``There are still some production rigs in the way'' of a major storm, said Gerard Burg, energy and minerals economist at National Australia Bank Ltd. in Melbourne. ``We're just going to have to wait and see what kind of impact it's going to have.''

Crude oil for October delivery rose $1.52, or 1.3 percent, to $116.98 a barrel in after-hours electronic trading on the New York Mercantile Exchange at 9:45 a.m. in Sydney. Prices, which dropped 7 percent in August, are up 22 percent this year.

Gulf Coast refineries have cut at least 1.56 million barrels a day of production, about 9.8 percent of the U.S. total. Eight refineries have announced shutdowns, while another five have reduced capacity.

Personnel from more than 70 percent of the platforms and rigs in the Gulf have been evacuated as the storm approaches, the U.S. Minerals Management Service said in a statement on its Web site yesterday. About 1.25 million barrels a day of oil, and 6.09 billion cubic feet of gas have been shut, or more than 96 percent of offshore oil output and 82 percent of gas production.

`More Prepared'

Gasoline for October delivery gained 7.48 cents, or 2.6 percent, to $2.9290 a gallon on the exchange. Electronic transactions started early to allow market participants to respond to Gustav. Trades will be dated Sept. 2 because of today's Labor Day holiday in the U.S.

``We're more prepared for this storm than we ever have been for any hurricane that I remember,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ``We're better prepared, and demand isn't that strong anyway, so I'm about as optimistic as I can be in this type of disastrous situation.''

The Gulf of Mexico accounts for 26 percent of U.S. oil production and 14 percent of natural-gas output. The Gulf normally produces about 1.3 million barrels of oil and an estimated 7.4 billion cubic feet of gas a day, according to the agency, part of the U.S. Interior Department.

Brent crude oil for October settlement rose $1.51, or 1.3 percent, to $115.56 a barrel on the ICE Futures Europe Exchange today.

Katrina, Rita

Hurricane Katrina struck Louisiana Aug. 29, 2005 with winds near 130 miles-an-hour, flooding 80 percent of New Orleans, killing 1,800 people in Louisiana and Mississippi and causing more than $80 billion in damage.

The storm reached Category 5 status, the strongest type of hurricane, before hitting land. Oil rose as much as 5.4 percent on Aug. 30 to a record $70.85 a barrel after Katrina 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 then Rita, which made landfall Sept. 24, 2005.

Gustav, earlier downgraded from Category 4, was packing winds of 115 miles an hour, the hurricane center said in its 4 p.m. local time advisory. While the storm may strengthen as it heads toward Louisiana, continuing wind shear and its track away from deep, warm currents in the Gulf ``reduces the chances of significant intensification.''

``You get a couple of rigs shut down, keeled over from this hurricane, and this is going go take days or weeks to fix,'' said Brad Samples, a commodity analyst for Summit Energy Inc. in Louisville, Kentucky. ``The bigger problem is on the refining side and the potential impact on all the refineries that string along the Gulf Coast.''

Natural gas for October delivery fell 19.3 cents, or 2.4 percent, to $7.75 per million British thermal units.

Chevron's Sabine Pipe Line LLC began to shut its pipelines and the Henry Hub natural gas connection point in Louisiana as mandatory evacuations were declared. Henry Hub, in Erath, Louisiana, is the pricing point for Nymex natural-gas futures.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.