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Oil Rises Above $115 as Tropical Storm Fay Nears Gulf of Mexico

By Christian Schmollinger and Gavin Evans
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Aug. 18 (Bloomberg) -- Crude oil rose for the first time in three days as a storm near Cuba prompted evacuations from rigs and platforms in the Gulf of Mexico, which account for about a fifth of U.S. production.

Royal Dutch Shell Plc and Transocean Inc. have evacuated workers as Tropical Storm Fay, with maximum sustained winds of about 50 miles (80 kilometers) an hour, may strengthen to a hurricane before striking Florida''s northwestern coast today, the National Hurricane Center said. Crude oil in New York fell to a 15-week low on Aug. 15, its second consecutive weekly decline.

``Fay is causing the market to edge up a bit,'''' said Victor Shum, senior principal at consultants Purvin & Gertz Inc. in Singapore. ``The increase is also a result of an oversold market on Friday and some participants see that as a buying opportunity.''''

Crude oil for September delivery rose as much as $1.58, or 1.4 percent, to $115.35 a barrel on the New York Mercantile Exchange and was trading at $115.26 at 2:51 p.m. in Singapore. The contract earlier fell as low as $113.25.

New York oil futures fell 1.1 percent on Aug. 15 to settle at $113.77, having earlier in the session touched $111.34, the lowest since May 1. Prices dropped last week as the strengthening dollar curbed the appeal of commodities as a hedge against inflation and on signs of falling demand in the U.S.

Brent crude for October settlement rose as much as $1.58, or 1.4 percent, to $114.13 a barrel on London''s ICE Futures Europe exchange. It was at $114.10 a barrel at 2:52 p.m. Singapore time.

The contract fell 9 cents to settle at $112.55 a barrel on Aug. 15. It reached as low as $110.31 a barrel.

Storms Disrupt

Storms routinely disrupt tanker traffic and production in the region in the North Atlantic hurricane season running June through November. In 2005, Hurricane Katrina wrecked platforms and refineries around New Orleans, prompting an international release of fuel from reserve stockpiles.

``We would have to see oil prices spike'''' if Fay veers west toward Louisiana, Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut, said in an interview with Bloomberg Television. ``But I don''t think they''ll be able to hold on to any spike, particularly if damage is minimal.''''

Shell evacuated about 360 non-essential staff from the eastern Gulf the past two days. Production hasn''t been affected. Transocean, the world''s largest offshore oil driller, said it evacuated 130 workers and suspended operations at several rigs in the Gulf as a precaution because of the storm, which was centered 170 miles southeast of Havana, Cuba at 11 p.m. New York time.

Dollar Gains

Prices have declined 22 percent from the record $147.27 a barrel reached on July 11 as the dollar rose for a fifth week against the euro and the Organization of Petroleum Exporting Countries warned of risks to world demand from the slowing global economy.

A report tomorrow will probably show home building in the U.S., the world''s largest oil consumer, fell to the lowest pace in 17 years in July amid rising borrowing costs and record foreclosures.

``It''s all about the dollar, that''s what''s pushing prices lower,'''' said Beutel. ``If we do see a recovery in housing a lot of people expect that will lead the fed to raise interest rates and again that brings us back to the dollar. If we see weak housing data, then people will say demand seems to be dropping.''''

The dollar rose 2.2 percent against the euro last week. It was at $1.4748 at 2:18 p.m. Singapore, from $1.4687 late in New York last week.

Hedge-fund managers and other large speculators increased their net-short position in New York crude-oil futures in the week ended Aug. 12, according to U.S. Commodity Futures Trading Commission data.

Speculative short positions, or bets prices will fall, outnumbered long positions by 9,130 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-short positions rose by 3,580 contracts, or 65 percent, from a week earlier.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Gavin Evans in Wellington at gavinevans@bloomberg.net
Last Updated: August 18, 2008 02:54 EDT