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

By Christian Schmollinger and Gavin Evans

Sept. 8 (Bloomberg) -- Crude oil rose from a five-month low in New York as the approach of Hurricane Ike delayed production from restarting in the Gulf of Mexico and investors sought commodities as the dollar lost value.

Royal Dutch Shell Plc evacuated workers from Gulf platforms or kept staff onshore who were moved from the path of Hurricane Gustav last month. Prices also rose after the U.S. government seized Fannie Mae and Freddie Mac, backers of about half the nation's home loans, slowing a rally in the dollar.

``There is concern about potential damage in addition to what has already been shut in'' said Victor Shum, a senior principal with consultants Purvin & Gertz Inc. in Singapore. ``In the short term, we'll continue to see a close inverse relationship between the dollar and crude.''

Crude oil for October delivery rose as much as $2.89, or 2.7 percent, to $109.12 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $107.89 at 3:07 p.m. in Singapore.

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 dropped 8 percent last week as Hurricane Gustav passed west of New Orleans with less strength than 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 80 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.

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

Ike Nears Gulf

Companies operating in the Gulf produce 1.3 million barrels of oil daily and an estimated 7.4 billion cubic feet of gas a day, according to the agency, part of the U.S. Interior Department. The offshore area accounts for 26 percent of U.S. crude production and 14 percent of natural-gas output.

Hurricane Ike has winds of almost 120 miles (195 kilometers) an hour and was about 85 miles east of Camaguey, Cuba, at 2 a.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 eastern Texas.

Brent crude oil for October settlement rose as much as $2.81, or 2.7 percent, to $106.90 a barrel on London's ICE Futures Europe exchange. It was at $105.46 at 3:08 p.m. Singapore time. The contract fell 2.1 percent to $104.09 on Sept. 5, the lowest since April 3.

Weaker Dollar

Oil in New York 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 0.8 percent in an index against six other major currencies at 12:48 p.m. in Singapore, the first decline in eight sessions. It was at $1.4412 against the euro and 108.80 to the yen, from $1.4267 and 107.73 late in New York Sept. 5.

OPEC Meets

OPEC, the supplier of 40 percent of the world's oil, will probably keep producing at a near record pace as $106-a-barrel crude squeezes the global economy.

``Our position is to leave everything unchanged,'' Ecuador's Energy and Mines Minister Galo Chiriboga told reporters as he arrived at his hotel in Vienna yesterday. ``We believe the market is well supplied.''

The 13-nation Organization of Petroleum Exporting Countries will keep production unchanged at a meeting tomorrow in Vienna, according to 29 of 32 energy analysts surveyed by Bloomberg last week. Iran and Venezuela will urge the group to trim supplies to prevent oil prices retreating below $100 a barrel.

Some members including Iran and Venezuela have asked the group to consider output cuts following the 27 percent decline in prices from their record on July 11.

The crude oil markets is oversupplied and OPEC will review output, Iranian Oil Minister Gholamhossein Nozari said.

``We will review the market and then we will decide,'' Nozari told reporters upon his arrival in Vienna.

To contact the reporters on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net; Christian Schmollinger in Singapore at christian.s@bloomberg.net