Crude Gains on Forecast Stockpile Drop as Cyclone Builds in Gulf of Mexico

Oil advanced from the lowest in more than a week in New York as a weather system in the Gulf of Mexico threatened supplies in the U.S., where production halts because of storms have already reduced crude stockpiles.

West Texas Intermediate climbed as much as 1.6 percent after the National Hurricane Center said a weather system over southwestern Gulf of Mexico may become a tropical cyclone. An Energy Department report tomorrow may show inventories declined 2.25 million barrels last week as Tropical Storm Lee shut production in the gulf, a Bloomberg News survey of analysts showed. Brent’s premium to U.S. prices narrowed from a record.

“The expectation that U.S. stock levels will be down due to shut-ins in the Gulf of Mexico, and the missing barrels from Libya, are keeping prices up,” said Gerrit Zambo, a trader at Bayerische Landesbank in Munich. “Oil is stronger than all the other markets around the world, so if there are signs the debt crisis cannot be overcome, I see a bigger downside for oil. But at the moment, oil is supported.”

Crude for October delivery gained as much as $1.40 to $87.42 a barrel in electronic trading on the New York Mercantile Exchange and was at $86.99 at 1:20 p.m. London time. The contract yesterday settled at $86.02, the lowest since Aug. 26. Prices have risen 17 percent in the past year.

Brent oil for October settlement added 33 cents to $113.22 on the ICE Futures Europe Exchange. The contract yesterday increased $2.81 to $112.89. The European benchmark contract was at premium of $26.23 to U.S. futures, compared with yesterday’s record close of $26.87.

Gulf Output

About 60.5 percent of oil production and 41.6 percent of natural gas output from the Gulf of Mexico has been halted after Tropical Storm Lee passed through the region, the Bureau of Ocean Energy Management, Regulation and Enforcement said yesterday.

The disturbance that started over the Bay of Campeche has a 60 percent chance of becoming a tropical cyclone in the next 48 hours, the National Hurricane Center said at 8 a.m. New York time. The bay, where conditions are conducive for strong storms, holds rigs and platforms owned by Petroleos Mexicanos. The Gulf of Mexico is home to 27 percent of U.S. oil output and 6.5 percent of the country’s natural gas production.

“When production is withdrawn the price will naturally want to rise,” said David Lennox, a resource analyst at Fat Prophets in Sydney. “Unless there is significant damage to fields it won’t be long-term. We are looking for WTI to trade within the $80 to $90 range.”

Inventory Forecasts

The Energy Department is scheduled to release its weekly stockpile report at 11 a.m. tomorrow in Washington, a day late because of the Labor Day holiday on Sept. 5.

Gasoline inventories probably slipped 1.45 million barrels from 208.6 million barrels, according to the Bloomberg News survey of analysts. Distillate-fuel supplies, a category that includes heating oil and diesel, probably fell 200,000 barrels, the survey shows.

Crude production in Libya slumped to 60,000 barrels a day in July, according to the Paris-based International Energy Agency, after the revolt to end Muammar Qaddafi’s 42-year rule disrupted pumping.

The North African nation, holder of the continent’s largest reserves, won’t reach pre-war crude production levels of about 1.6 million barrels a day for at least 18 months, Bank of America Corp. said in an e-mailed report today.

Estimates by Libya’s National Transitional Council that output can be restored to about 600,000 barrels a day are “optimistic,” Bank of America’s London-based head of commodities research Francisco Blanch said in the report.

To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Ayesha Daya in Dubai at adaya1@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net