Oil prices rise on hurricane fear

Business Materials 8 September 2008 15:37 (UTC +04:00)

Oil prices rose on Monday on fears that Hurricane Ike would disrupt oil production in the Gulf of Mexico.

US light, sweet crude climbed $1.41 to $107.64, and London Brent crude gained $1.19 to $105.28 in early trading, reported BBC.

Prices also rebounded on hopes that the US government's rescue of mortgage firms Freddie Mac and Fannie Mae would prevent a further economic slide.

Traders are also awaiting a decision on production from the organisation of petroleum exporting countries, Opec.

It is expected that Opec will hold the current oil production levels at a meeting in Vienna on Tuesday.

"I don't believe there is any possibility we will change production levels," said Ecuador's oil minister Galo Chiriboga on Sunday.

However, there has been growing speculation that some members such as Venezuela might want to lower output.

Saudi Arabia, Opec's most powerful member, is yet to comment.

Oil prices had been falling over the last week. On 5 September US light, sweet crude reached $106.23 a barrel, its lowest point for five months.

Some analysts expect prices to continue to rise, with a number of rigs in the Gulf of Mexico under threat from Hurricane Ike. The rigs produce some 25% of US oil output and supply about 15% of its natural gas.

On Sunday Hurricane Ike weakened slightly as it approached Cuba. However, US Federal Emergency Management Agency officials predicted it would gain strength as it entered the Gulf of Mexico.

Meanwhile, prices also reacted to the news that the US government would bail-out mortgage lenders Fannie Mae and Freddie Mac.

There had been worries that, were the problems affecting the US mortgage market to worsen significantly, US consumers would face an additional financial burden to add to the spiralling rising of food and energy.

This would have caused them to tighten their belts, reducing demand for oil from motorists, transport firms and factories.