Crude Oil Rises in New York on Speculation of AIG Rescue Plan

By Margot Habiby

Sept. 17 (Bloomberg) -- Crude oil rose from a seven-month low amid speculation the Federal Reserve may rescue American International Group Inc. from collapse.

Oil climbed as U.S. stocks advanced after floor trading closed on the New York Mercantile Exchange yesterday. U.S. crude-oil and fuel inventories probably fell last week as production platforms and refineries on the Gulf of Mexico shut because of hurricanes Gustav and Ike, a Bloomberg survey showed.

``The rebound in the stock market probably encouraged some buying, and then I think we're also setting up for the DOE report, which should show lower U.S. inventories in the major categories,'' said Tim Evans, an analyst with Citi Futures Perspective in New York.

Crude oil for October delivery rose $1.60, or 1.8 percent, to $92.75 a barrel at 9:15 a.m. Sydney time on the Nymex after touching $92.98. Crude futures declined more than $10 a barrel in the past two days on concern that financial market disruptions may weaken the global economy and cut fuel demand.

Prices have dropped 3.4 percent this year and declined 37 percent from the record $147.27 a barrel reached on July 11. Yesterday, oil fell $4.56, or 4.8 percent, to $91.15 a barrel, the lowest settlement price since Feb. 7.

Regulators are considering putting AIG into conservatorship while the Fed is in talks about a ``loan package'' as time runs out for the insurer to raise cash, according to three people briefed on negotiations involving U.S. and state officials.

Lehman Brothers

Yesterday, AIG had its credit rating cut, threatening efforts to raise funds, and the Fed left its main interest rate at 2 percent. Lehman Brothers Holdings Inc. Sept. 15 sought bankruptcy protection. The two-day drop in oil has erased this year's gain.

U.S. crude-oil inventories probably fell 3.5 million barrels last week because of Ike, a Bloomberg News survey of analysts showed. Supplies of gasoline and distillate fuel, a category that includes heating oil and diesel, probably also dropped. The Energy Department is scheduled to release its weekly petroleum supply report at 10:35 a.m. Washington time today.

``Ike disrupted imports of crude oil, it disrupted refinery operations and it disrupted some crude oil production from the Gulf of Mexico,'' Evans said.

Gasoline for October delivery rose 3.77 cents, or 1.6 percent, to $2.4385 a gallon in New York. Yesterday, it dropped 16.06 cents, or 6.3 percent, to settle at $2.4008 a gallon, the lowest since Feb. 13.

Demand Forecast

Venezuela may call a special meeting of the Organization of Petroleum Exporting Countries if crude oil prices continue to fall, Energy and Oil Minister Rafael Ramirez said yesterday.

OPEC, supplier of more than 40 percent of the world's oil, lowered its forecast for 2009 oil demand to 87.66 million barrels a day because of the global economic slowdown.

OPEC needs to study the effects of its production cuts before considering an emergency meeting, Iran's OPEC governor said yesterday.

``Ministers need at least September and October data to see the impact of OPEC's decision on the market,'' Mohammad Ali Khatibi said in a phone interview from Tehran yesterday. ``We cannot be in a hurry; an emergency meeting would be a judgment in a rush.''

OPEC agreed at its meeting in Vienna last week to a limit for 11 members of 28.8 million barrels a day, about 500,000 barrels a day lower than the group's July output. The group is scheduled to meet on Dec. 17 in Oran, Algeria.

Raw Materials

The Reuters/Jefferies CRB Index of 19 raw materials dropped as much as 3.1 percent yesterday to 337.44, the lowest since Dec. 3. The index reached a record on July 3 as the dollar headed toward the lowest ever against the euro and oil approached an all-time high.

Brent crude oil for November settlement declined $5.02, or 5.3 percent, to settle at $89.22 a barrel on London's ICE Futures Europe exchange yesterday. It was the lowest settlement price since Feb 7. Prices have dropped 14 straight days, the longest stretch since the contract was introduced in 1988.

A total of 14 Texas and Louisiana refineries, with combined crude-oil processing capacity of 3.57 million barrels a day, are shut because of Ike, the U.S. Energy Department said.

U.S. energy producers have idled about 97 percent of oil production in the Gulf of Mexico after Ike and Hurricane Gustav moved through the region, the Minerals Management Service said yesterday in a statement on its Web site. Gulf fields produce 1.3 million barrels oil a day, about one-quarter of U.S. output.

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