Oil Rises From 5-Month Low as Hurricane Ike Heads for Houston

By Mark Shenk and Margot Habiby

Sept. 12 (Bloomberg) -- Crude oil rose from a five-month low as Hurricane Ike headed toward a near-direct hit at Houston, the busiest U.S. refining center.

About 12 percent of U.S. refining capacity is being shut before Ike makes landfall tomorrow. The Gulf Coast region is home to 26 percent of U.S. oil production. Ike's forecast path veered closer to Houston yesterday. Galveston, parts of southern Houston and areas south of the city and near the coast are under a mandatory evacuation order.

``We have about 3 million barrels a day of refining in the forecast path of Hurricane Ike,'' said Brad Samples, a commodity analyst for Summit Energy Inc. in Louisville, Kentucky.

Crude oil for October delivery rose 53 cents, or 0.5 percent, to $101.40 a barrel at 8:32 a.m. Sydney time on the New York Mercantile Exchange. Prices are up 27 percent from a year ago. Yesterday, futures fell $1.71, or 1.7 percent, to $100.87 a barrel, the lowest settlement price since March 24.

Gasoline for October delivery rose 2.12 cents, or 0.8 cent, or 0.7 percent, to $2.77 a gallon in New York after rising 8.72 cents, or 3.3 percent, to $2.7488 a gallon yesterday in the biggest one-day gain since Aug. 27. Heating oil gained 2.2 cent, or 0.8 percent, to $2.9375 a gallon. Yesterday, it increased 1.31 cents, or 0.5 percent, to $2.9155 a gallon.

Ike's eye was 400 miles (645 kilometers) east-southeast of Galveston, Texas, and moving west-northwest at 10 miles per hour, the National Hurricane Center said in an advisory at 4 p.m. Houston time. It strengthened to a Category 2 hurricane with sustained winds of 100 miles per hour, up from 80 mph Sept. 10. The mandatory evacuation orders started at noon yesterday and the area may see a storm surge of as much as 15 feet, the center said.

Refinery Closures

Exxon Mobil Corp.'s Baytown refinery, the country's biggest, with a capacity of 590,500 barrels of crude oil a day, is in a mandatory evacuation area and the company has begun shutting the facility, according to an advisory on its Web site.

Valero Energy Corp. is shutting its Houston and Texas City, Texas, refineries. The company also reduced rates at its Port Arthur refinery and may decide yesterday if it will shut the plant, said Bill Day, a company spokesman, in an e-mail. The Houston and Texas City refineries can process a combined 375,000 barrels of oil a day, according to the company Web site.

BP Plc is closing its Texas City refinery because of Ike, Scott Dean, a company spokesman, said in a telephone interview. Texas City has a 475,000-barrel-a-day capacity.

Platform Evacuations

Gulf operators have evacuated workers from 78 percent of production platforms, the Minerals Management Service said on its Web site yesterday. The agency estimates that 97 percent of Gulf oil production, and 93 percent of natural gas output, is shut. That is about 1.3 million barrels a day of oil and 7.4 billion cubic feet a day of gas.

CME Group Inc., the world's biggest futures exchange, said it's extending New York Mercantile Exchange electronic trading hours this weekend because of Ike.

The decision applies to energy trades on its ClearPort and Globex trading platforms, CME said in a release yesterday. Trading will begin at 10 a.m. New York time on Sept. 14 with the session closing on Sept. 15. Trading would normally open at 7 p.m.

Brent crude oil for October settlement declined $1.33, or 1.3 percent, to settle at $97.64 a barrel on London's ICE Futures Europe exchange, the lowest since March 4. The futures have dropped 11 straight days, the longest stretch since the contract was introduced in 1988.

Oil's Drop

Oil in New York has fallen 32 percent from a record $147.27 a barrel on July 11 as high prices and slowing global economic growth reduce demand for fuels. Oil's decline led the Organization of Petroleum Exporting Countries to say at a meeting this week it will try to limit production.

OPEC members, who supply about 40 percent of the world's oil, agreed in Vienna to a total production limit for 11 members of 28.8 million barrels a day, unchanged from previous targets. OPEC Secretary-General Abdalla El-Badri said this means it will trim ``oversupply'' by about 500,000 barrels a day.

Crude oil also fell because the dollar gained against the euro, reducing the appeal of commodities as a hedge. The dollar rose to a one-year high against the euro on speculation that growth in Europe will slow more than in the U.S. Investors looking to hedge against the dollar's decline helped lead crude oil and other commodities to records earlier this year.

The U.S. currency climbed 0.4 percent to $1.3946 per euro, from $1.3998 Sept. 10, after touching $1.3882, the strongest level since Sept. 18, 2007.

To contact the reporters on this story: Mark Shenk in New York at mshenk1@bloomberg.net; or Margot Habiby in Dallas at mhabiby@bloomberg.net.