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

By Christian Schmollinger

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

About 16 percent of U.S. processing capacity is being shut before Ike makes landfall tomorrow. The Gulf Coast region is home to 26 percent of U.S. oil production. Evacuations have shut 97 percent of Gulf crude production and 93 percent of natural gas output, the Minerals Management Service said yesterday.

``It is having a disruptive effect on production at the moment,'' said David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney. ``The biggest effect on the price now is that there is so much output shut-in.''

Crude oil for October delivery rose as much as 82 cents, or 0.8 percent, to $101.69 a barrel on the New York Mercantile Exchange. It was at $101.30 a barrel at 2:33 p.m. in Singapore. 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 gained as much as 4.02 cents, or 1.5 percent, to $2.7890 a gallon in New York after rising 3.3 percent yesterday, the biggest one-day gain since Aug. 27. Heating oil climbed as much as 4.95 cents, or 1.7 percent, to $2.9650 a gallon, having risen 0.5 percent yesterday.

Oil is set for its second weekly decline, dropping 4.5 percent this week as the dollar surged to its strongest level against the euro in a year, reducing the appeal of commodities.

Dollar Gains

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

``A lot of this is tied to the strong U.S. dollar,'' said Commonwealth Bank's Moore. ``That's a factor that's contributed to the lower oil price.''

Ike's eye was 300 miles (485 kilometers) southeast of Galveston, Texas, and moving west-northwest at 12 miles per hour, the National Hurricane Center said in an advisory at 10 p.m. Houston time. It strengthened to a Category 2 hurricane with sustained winds of 100 mph, up from 80 mph Sept. 10.

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.

Refinery Closures

Valero Energy Corp., the largest U.S. refiner, said it shut three Texas oil refineries with a combined capacity of 700,000 barrels a day because of the danger posed by Hurricane Ike.

Valero will close its 325,000 barrel-a-day Port Arthur, Texas, refinery, a Texas City plant with a capacity of 245,000 barrels and a Houston facility which can process 130,000 barrels, spokesman Bill Day said in an e-mail. Valero's other Gulf Coast refineries are operating at planned rates.

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.

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

Venezuela Threatens

Venezuelan President Hugo Chavez yesterday ordered the American ambassador to Caracas to leave and threatened to halt oil exports to the U.S. in a show of solidarity with his Bolivian counterpart Evo Morales.

Chavez and Morales, who expelled the top U.S. envoy from his country two days ago, have accused the U.S. of backing opposition movements in their countries.

Chavez, a self-proclaimed socialist who refers to America as an ``empire,'' threatened to halt Venezuelan oil shipments to the U.S. if it attacks his country. Venezuela is the fourth- biggest supplier of foreign crude oil to America.

CME Group Inc., the world's biggest futures exchange, is 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 normally opens at 7 p.m.

Brent oil for October settlement rose as much as 81 cents, or 0.8 percent, to $98.45 a barrel on London's ICE Futures Europe exchange. It was at $98.07 at 2:38 p.m. Singapore time.

The contract yesterday declined $1.33, or 1.3 percent, to settle at $97.64 a barrel, the lowest since March 4. The futures had dropped 11 straight days, the longest stretch since the contract was introduced in 1988.

Cracks Improve

The refinery closures after Hurricane Gustav led to a decline in U.S. gasoline stocks of 6.5 million barrels, or 3.3 percent, last week, the Energy Department said Sept. 10. This puts supplies 9.3 million barrels below their 5 year average, according to a report by Barclays Capital analysts.

Refinery capacity utilization fell to 78.3 percent last week from 88.7 percent the previous week, the Department said.

The lower stockpiles have led to an increase in the gasoline crack margin, or the price difference between the motor fuel and crude oil. The crack has more than tripled since Sept. 1, when Gustav made landfall, to $15.50 a barrel today.

``Once the storm passes it's very likely you'll see a lifting in refinery rates because obviously the disruption to activity caused by the storm suggests we'll get a drawdown in stocks,'' said Commonwealth's Moore.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net