Oil rises on worries Storm Fay may disrupt supply

August 18, 2008 6:22:42 AM PDT
Oil prices were slightly higher Monday on concerns that Tropical Storm Fay may disrupt oil operations in the Gulf of Mexico. By midday in Europe, light, sweet crude for September delivery rose 26 cents to $114.03 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.24 on Friday to settle at $113.77 a barrel.

In London, October Brent crude was up 39 cents to $112.94 a barrel on the ICE Futures exchange.

"There could be some supply disruption issues there so the market is watching this closely," said Mark Pervan, senior commodity strategist at ANZ Bank in Melbourne.

Fay, the sixth storm of the 2008 Atlantic season, was slowing down early Monday and moving erratically, but forecasters still expected it to strengthen slowly to a hurricane. Fay has already killed at least five people after battering Haiti and the Dominican Republic with weekend torrential rains and floods.

Oil giant Royal Dutch Shell has evacuated about 360 staff from the Gulf of Mexico over the past two days.

Fay was centered about 275 kilometers (170 miles) southeast of Havana and 375 kilometers (235 miles) south-southeast of Key West, Florida, according to the U.S. National Hurricane Center in Miami.

It had maximum sustained winds near 85 kph (50 mph) and was moving west-northwest at 17 kph (10 mph).

Forecasters expected the storm to begin moving more to the northwest later on Monday. Current models show the storm moving up the western coast of Florida, although forecasters still didn't know exactly where it will make landfall.

So far during this year's hurricane season in the Atlantic Ocean, no storm has significantly damaged oil installations in the Gulf.

"The market will probably get through this hurricane news pretty quickly," Pervan said.

A small dip in the U.S. dollar also supported oil prices. The euro strengthened to $1.4730 on Monday and the dollar was steady above 110 Japanese yen.

A falling dollar typically pushes oil prices higher as investors buy crude and other commodities as hedges against inflation.

Still, analysts said that if the dollar's rising trend continued in coming weeks and months, it likely would dampen gains in oil prices.

"The number one story in global assets is for now the rise of the Dollar Index," said Olivier Jakob of Petromatrix in Switzerland. "Since it was a key market input for the upward move of crude oil, any further rise in the Dollar Index should further limit the upside potential for oil."

A forecast from the Organization of Petroleum Exporting Countries on Friday of lower global oil demand growth helped to keep prices from rising higher.

In its monthly oil report, the organization forecast world appetite for oil this year would grow by 1 million barrels a day, a reduction of 30,000 barrels a day from its previous forecast for demand growth for 2008. It also said growth for 2009 will be 900,000 barrels a day, which it said would be the lowest growth in world demand since 2002.

Demand growth from the major industrialized countries will actually decline, OPEC said, with non-OECD countries accounting for all oil demand growth next year.

"It's another signal that conditions are easing," Pervan said.

In other Nymex trading, heating oil futures fell 1.72 cents to $3.1019 a gallon (3.8 liters) while gasoline prices lost 0.17 cent to $2.8585 a gallon. Natural gas futures fell 11.4 cents to $7.978 per 1,000 cubic feet.

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Associated Press writer Alex Kennedy in Singapore contributed to this report.

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