Oil rises as Gustav threatens U.S. Gulf

Business Materials 28 August 2008 03:20 (UTC +04:00)

Oil rose on Wednesday on forecasts that Tropical Storm Gustav will intensify into a hurricane as it ploughs toward the U.S. oil and natural gas platforms in the Gulf of Mexico.

Further support came from weekly U.S. government inventory data that showed an unexpected drop in crude oil stockpiles in the world's top consumer.

U.S. crude gained 77 cents to $117.04 a barrel by 1 p.m. EDT (1700 GMT), adding to two days of gains. London Brent crude traded up 57 cents to $115.20 a barrel.

Storm tracks showed Gustav churning toward the Gulf of Mexico, and forecaster Planalytics said 85 percent of U.S. oil and natural gas production in the region could be shut in.

Companies began pulling workers off rigs as weather models showed Gustav strengthening into a hurricane before it hits the Gulf, which pumps about a quarter of U.S. oil production and 15 percent of natural gas output.

If Gustav hits the Gulf as a Category 3 hurricane it would be the biggest storm to hit the region's oil infrastructure since hurricanes Katrina and Rita in 2005.

"After 2005, when a hurricane blows in, guys tend to prepare for the worst. It's a situation where simply you don't want to be the guy caught short, because someone will be," said Steve Mosby, vice president at ADMO Energy.

Analysts said U.S. companies could be forced to draw on oil inventories to make up for disruptions, after data from the U.S. Energy Information Administration showed U.S. crude stocks fell 100,000 barrels last week, against calls for a build.

Gasoline stocks fell 1.2 million barrels, less than forecasts for a 2.9 million barrel drawdown, while distillate inventories were unchanged.

Oil prices have tumbled from a record above $147 a barrel hit last month as high fuel prices and the wider economic problems hurt demand in the United States and Europe.

Traders were also eyeing the upcoming OPEC meeting and escalating tensions between Russia and the West after U.S. President George W. Bush condemned Russia for recognizing breakaway regions in Georgia.

OPEC will next meet on September 9 to review output policy, and some analysts say top exporter Saudi Arabia may come under pressure from within OPEC's ranks to reduce supplies to prevent a further fall in crude prices, Reuters reported.