Oil prices gained for a fourth straight day yesterday, as concerns mounted that a tropical storm in the Gulf of Mexico could threaten US oil facilities. By 6:30pm, prices for October delivery of West Texas Intermediate crude briefly reached a high of US$120.05 (Dh440.95) per barrel up from $118.15. Prices in London, for the Brent contract, went up to $117.09 from $116.22.
The storm, named Gustav, was moving west, south of the Cuban coast yesterday, with an expected route that would take it close to the shores of the US next week. The US National Weather Service warned the storm could regain hurricane-strength winds of 119km/h by Friday, in time to threaten oil facilities close to shore. Traders feared the storm would at the very least cause offshore platforms and onshore refineries in the US to suspend operations, said Dalton Garis, an associate professor of economics and petroleum market behaviour at the Petroleum Institute in Abu Dhabi.
"I think it's the offshore platforms and the refining facilities both," he said. BP and Shell both announced they would evacuate some workers from their offshore platforms. Semisubmesible platforms, which drill for deepwater oil far from shore, take about a week to restart after a production disruption, Mr Garis said. Refineries can take more than two weeks to resume operations. Assuming the storm does not seriously damage oil facilities, Mr Garis said prices would probably fall again next week, but were unlikely to dip below recent lows under $115.
"I think for now, we've probably found a local bottom," he said. "We still have a geopolitical risk vis-a-vis the US and Iran, and vis-a-vis Russia and everyone else." The next big focus for traders is Opec, which is to meet on Sept 9 to decide output levels. Ministers from the Opec member states have appeared split on the question of whether to cut output to increase prices, with Iran arguing prices are now too low, and the Nigerian oil minister indicating that he would like supply levels to remain unchanged.
Mr Garis said Opec might elect to cut output slightly to see how much control it has over the market. "My guess is they might announce a modest cut in output," he said. Mr Garis said traders were closely following changes in Asian demand after the conclusion of the Olympics, and weighing forecasts by the Farmers Almanac of a harsh winter in the US. * With agencies @email:email@example.com