Storm warning: for oil futures markets
Oil traders duck and cover
Oil rose more than $1 to near $117 a barrel today as energy companies prepared for Tropical Storm Gustav to deliver what could be the hardest hit to the heart of US offshore production since the devastating 2005 hurricane season.
Crude for October delivery was trading up $1.16 at $116.75 a barrel by 0245 GMT, after rising more than $1 to as high as $116.89 earlier, Reuters reported.
That pared yesterday's loss of $2.56, triggered after the US government and the International Energy Agency pledged to release emergency stockpiles if Tropical Storm Gustav disrupted US oil production.
London Brent crude rose $1.11 to $115.28 a barrel.
Tropical Storm Gustav was forecast to strengthen into a hurricane by today as it neared the Gulf of Mexico, home to a quarter of US crude production and 15% of its natural gas output.
Electronic trading was relatively calm ahead of the US Labour Day holiday on Monday.
"Gustav is expected to become a Category 3 hurricane at the least, and possibly 4 or 5," said Akira Kamiyama, derivatives trader at Mitsui & Co. "Amid thin trading, it is a given never to find yourself in short positions."
Oil companies were preparing platforms for the storm, expected to enter the Gulf as a major hurricane on Sunday and possibly reach catastrophic strength.
Shell, the largest producer in the Gulf of Mexico with average production in the region of 370,000 barrel of oil equivalent per day, said it expects to shut all of its Gulf of Mexico production over the next two days as it evacuates workers from offshore platforms.
Anadarko Petroleum said it expects to shut all its production, including the Independence Hub, the largest offshore natural gas processing facility, by Sunday as it evacuates all offshore staff.
Forecaster Planalytics said that any damage to offshore platforms would not be long-lasting, after predicting on Wednesday that up to 85% of the Gulf's oil and natural gas production could be shut in by Gustav.
Further support came after UK newspaper The Daily Telegraph reported today that the Russian government had told at least one of its oil companies to prepare for a possible cut in shipments to Europe in days in response to threatened sanctions, citing a single unidentified source.
The dollar held firm against a basket of currencies today, consolidating gains made the previous day on data showing the US economy grew at a faster pace than initially thought during the second quarter.
Opec could cut output at a meeting in September but will most likely maintain current production levels, Venezuela's Oil Minister Rafael Ramirez said yesterday.
The US Department of Energy said yesterday the government was ready to release crude from the Strategic Petroleum Reserve if Gustav seriously disrupted supplies. The International Energy Agency said member nations were ready to release strategic oil stocks.
Also yesterday, US government data showed a record build in natural gas storage last week, casting a bearish tone.
Traders were also eyeing the Opec meeting scheduled for 9 September in Vienna, as well as escalating tensions between Russia and Georgia.
Nymex floor trading will be closed on Monday, Labour Day. Electronic trading on Globex will not be affected.