Oil Rises From Five-Month Low as Hurricane Nears, Dollar Eases

By Gavin Evans

Sept. 8 (Bloomberg) -- Crude oil rose from a five-month low in New York as the approach of Hurricane Ike delayed the restoration of production in the Gulf of Mexico.

Oil gained for the first time in seven sessions as producers including Royal Dutch Shell Plc evacuated workers from platforms in the Gulf or kept staff onshore who were moved from the path of Hurricane Gustav last month. Prices also rose after the U.S. government's seizure of Fannie Mae and Freddie Mac, backers of about half the nation's home loans, slowed a rally in the dollar.

``We've already gone a full week and a half with production shut in from Hurricane Gustav,'' Stephen Schork, president of Schork Group Inc., told Bloomberg television. ``Now everything has to be shut down again for at least another week.''

Crude oil for October delivery rose as much as $2.52, or 2.4 percent, to $108.75 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $108.07 at 9:31 a.m. in Sydney.

The contract fell $1.66, or 1.5 percent, to $106.23 on Sept. 5, the lowest close since April 4 and its sixth straight decline. Oil fell 8 percent last week as Hurricane Gustav passed west of New Orleans with less strength than earlier forecast, and the euro dropped against the U.S. currency, reducing the appeal of dollar-priced commodities.

Gustav shut all the oil production and most of the gas output in the Gulf of Mexico, the biggest offshore producing region in the U.S. About 79.8 percent of the oil output and 70 percent of the gas was still shut-in yesterday, the U.S. Minerals Management Service said in a statement.

Ike Nears Gulf

Hurricane Ike has winds of almost 120 miles (195 kilometers) an hour and was about 75 miles north-northeast of Guantanamo, Cuba, as of 5 p.m. New York time, the National Hurricane center said. The Category 3 hurricane is projected to move west across Cuba and into the Gulf during the next two days on a path that may take it toward southern Texas.

Brent crude oil for October settlement rose $1.77, or 1.7 percent, to $105.86 a barrel on London's ICE Futures Europe exchange. The contract fell 2.1 percent to $104.09 on Sept. 5, the lowest settlement since April 3.

Oil reached a record in July as the falling dollar encouraged investors to buy commodities as a hedge against inflation. Brent has fallen 22 percent the past two months as slowing economies in Europe pulled the euro to a 10-month low against the dollar.

Oil's direction from here will depend on whether investors are worried or relieved by the U.S. rescue of Freddie Mac and Fannie Mae, Schork said.

``There is an inextricable link between the dollar and crude oil,'' he said. ``It all depends on how the market wants to value the dollar now and how the market interprets this move by the U.S. government.''

The dollar fell 0.5 percent in an index against six other major currencies at 8 a.m. in Tokyo, the first decline in eight sessions. It was at $1.4348 against the euro and 108.46 to the yen, from $1.4267 and 107.73 late in New York Sept. 5.

To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net