Oil Little Changed on Gulf Coast Supply Gain, Demand Decline

By Margot Habiby and Samantha Zee

Sept. 11 (Bloomberg) -- Oil futures were little changed in New York after falling to a five-month low on a U.S. government report yesterday that showed supplies increased along the Gulf Coast as Hurricane Gustav cut refinery output.

Refinery operating rates nationwide declined to 78.3 percent of capacity in the week ended Sept. 5, the lowest since 2005, when hurricanes Katrina and Rita struck the Gulf, the Energy Department said yesterday in a weekly report. Regional oil supplies rose to the highest since May.

``We ended up with more oil on the Gulf Coast than we thought because refineries didn't use as much,'' said David Pursell, an analyst at Tudor, Pickering, Holt & Co. in Houston.

Crude oil for October delivery rose 70 cents, or 0.7 percent, to $103.28 a barrel at 9.01 a.m. Sydney time on the New York Mercantile Exchange. Yesterday, October futures fell 68 cents to settle at $102.58 a barrel in New York, the lowest since April 2.

Brent crude oil for October settlement declined $1.37, or 1.4 percent, to $98.97 a barrel on London's ICE Futures Europe exchange, the first time it's closed under $100 since March 24. The contract has dropped for 10 straight days, the longest stretch since at least 1988.

Oil supplies increased by 1.77 million barrels in states along the Gulf of Mexico at the same time regional producers shut all U.S. crude output in the Gulf in preparation for Hurricane Gustav. Regional inventories reached 159.6 million barrels, the highest since May.

Futures traded at $104.10 a barrel before the release of the inventory report at 10:35 a.m. in Washington.

Crude has fallen about 30 percent from a record $147.27 a barrel on July 11 as high prices and slowing global economic growth reduced demand for fuels.

U.S. Supplies

U.S. inventories of crude oil dropped 5.8 million barrels to 298 million, the department said. Supplies were forecast to decline 3.5 million barrels, according to the median of analyst estimates in a Bloomberg News Survey.

``The data for last week might be supportive, but it is still not enough to turn crude back into a bull market,'' said Tim Evans, an analyst with Citi Futures Perspective in New York. ``The drop in refinery processing does mean a drop in crude oil demand, so that is a piece of it.''

Gasoline for October delivery rose 0.9 cent, or 0.3 percent, to $2.6616 a gallon on the Nymex. It touched a five-month low of $2.6082 on Sept. 2.

Regular gasoline, averaged nationwide, rose 1.6 cents to $3.668 a gallon, AAA, the nation's largest motorist organization, said today on its Web site. Prices reached a record $4.114 a gallon on July 17.

Demand Forecasts

Demand for fuels averaged over the past four weeks declined 3.8 percent, the Energy Department report showed.

The European Commission cut its growth estimate for the euro area this year and the International Energy Agency reduced its forecast for global oil demand in 2008 and 2009 as high prices reduce U.S. consumption.

The U.S. government cut its forecast for the price of crude oil, gasoline and winter heating fuels yesterday, citing the slowdown in global demand.

The dollar rose to an 11-month high against the euro yesterday. Earlier this year, the dollar's weakness spurred investments in commodities as an inflation hedge. The U.S. currency increased 0.7 percent to $1.4033 per euro at 3:47 p.m. in New York, from $1.4133 yesterday. It touched $1.4012, the strongest level since October 2007.

Earlier today, oil rose as high as $104.97 a barrel after OPEC Secretary-General Abdalla El-Badri called for members to trim an ``oversupply'' of output by about 500,000 barrels a day.

Ike Strengthens

The Organization of Petroleum Exporting Countries agreed at its meeting in Vienna to a total production limit for 11 members of 28.8 million barrels a day, unchanged from previous targets. Saudi Arabia said it isn't planning to reduce its oil production.

Hurricane Ike strengthened as it entered the Gulf of Mexico and headed in the direction of Texas, after leaving more than 170 people dead when it lashed Cuba and Haiti.

Ike's eye was 720 miles (1,155 kilometers) southwest of Brownsville, Texas, and was moving northwest at 8 miles per hour at about 4 p.m. New York time, according to the U.S. National Hurricane Center in Miami.

Ike's winds strengthened to almost 100 miles per hour from almost 90 mph hours before. That makes it a Category 2 hurricane on the five-tier Saffir-Simpson hurricane scale. It's forecast to become a Category 3 storm, a major hurricane, before making landfall between Corpus Christi, Texas, and Houston this weekend, according to a chart from the Hurricane Center.

To contact the reporters on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net; Samantha Zee in Los Angeles at szee@bloomberg.net