Oil Rises as Isaac Curbs Output, U.S. Supplies May Fall

Oil rose for the first time in four days in New York as Hurricane Isaac reduced offshore output in the Gulf of Mexico and on speculation that U.S. supplies fell to a five-month low.

Futures advanced 0.9 percent after the Bureau of Safety and Environmental Enforcement reported that 93 percent of crude production from the Gulf has been shut in as Isaac approaches. U.S. crude stockpiles probably dropped 1.75 million barrels last week, according to a Bloomberg survey before tomorrow’s Energy Department report.

“It’s hard to sell off this market with a storm heading for the Louisiana coast,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “We’re also expecting tomorrow’s report to show a fairly large inventory drop. These two factors will probably keep the market higher today.”

Crude oil for October delivery rose 86 cents to settle at $96.33 a barrel on the New York Mercantile Exchange. Prices are up 13 percent from a year ago.

Prices retreated from the settlement after the industry- funded American Petroleum Institute reported oil inventories rose 5.46 million barrels last week to 366.5 million. The October contract was up 60 cents at $96.07 at 4:32 p.m. in electronic trading.

Brent oil for October settlement increased 32 cents, or 0.3 percent, to end the session at $112.58 a barrel on the London- based ICE Futures Europe exchange. The European benchmark grade’s premium to West Texas Intermediate oil traded in New York narrowed to $16.25, the smallest gap in a month.

‘Everything Possible’

Isaac’s center was 55 miles (85 kilometers) south-southeast of the mouth of the Mississippi River, the National Hurricane Center said in an advisory at 2 p.m. New York time. Isaac was moving northwest at 10 miles per hour with top winds of 75 mph.

President Barack Obama said he’s ordered the federal government to do “everything possible” to help those in the path of Isaac. He called on Gulf Coast residents to be cautious.

“We’re dealing with a big storm,” Obama said in remarks from the White House. “Now’s not the time to tempt fate. You need to take this seriously.”

The president earlier declared an emergency for Louisiana, authorizing agencies to coordinate relief efforts. He said the Federal Emergency Management Agency has been in the Gulf region for more than a week.

“We’ve moved to wait-and-see mode,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “We are now waiting to see if there’s going to be anything unexpected with Isaac, whether it is stronger or weaker than expected and whether it moves on a different path than forecast.”

U.S. Inventories

U.S. crude oil stockpiles may fall for a fifth week, the longest run of declines since July 2011, according to the median of 12 analyst estimates before tomorrow’s report. The decrease would leave supplies at the lowest level since March 23.Inventories surged to 387.3 million in the week ended Jun 15, the highest level since July 1990.

“The fundamentals suggest that crude could fall a bit,” said Sarah Emerson, managing director of Energy Security Analysis Inc. in Wakefield, Massachusetts. “Prices climbed above $90 as inventories dropped with the start of the third quarter. It’s important to remember that supplies are still not tight because they were at very high levels.”

Gasoline supplies may have dropped 1.45 million barrels, and inventories of distillate fuel, a category that includes diesel and heating oil, probably rose 200,000 barrels, according to the survey.

‘A Liftoff’

“The crude oil and gasoline markets may get a liftoff tomorrow if the numbers come in as expected,” Evans said. “We’re expecting to see at least moderate declines in both crude oil and gasoline supplies.”

Gasoline for September delivery fell 2.87 cents, or 0.9 percent, to settle at $3.1261 a gallon on the Nymex. Yesterday, prices surged to $3.1548, the highest close since April 30, as U.S. Gulf Coast refineries shut with the approach of Isaac and a fire in Venezuela closed the Amuay refinery, the nation’s largest. An Aug. 6 fire at Chevron Corp.’s (CVX) refinery in Richmond, California, also reduced processing capacity.

Venezuelan President Hugo Chavez said firefighters contained the last fire at Amuay, where a gas leak caused an explosion Aug. 25. The plant, which can process 645,000 barrels a day, forms part of the Paraguana complex 240 miles west of Caracas.

Damage was limited to the storage tanks and Venezuela has enough gasoline inventories to meet all commitments, Oil Minister Rafael Ramirez said on television.

‘Sustained’ Price

“We’ve had the fires at Amuay and Richmond refineries and now the storm-related closures of refineries along the Gulf,” Emerson said. “WTI at the higher end of the $80-to-$100 range and Brent between $100 and $115 can be sustained for several months.”

Electronic trading volume on the Nymex was 364,491 contracts as of 4:33 p.m. in New York. Volume totaled 434,112 contracts yesterday, 20 percent below the three-month average. Open interest was 1.5 million.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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