By Nesa Subrahmaniyan and Gavin Evans
Sept. 1 (Bloomberg) -- Crude oil and gasoline rose in New York as Hurricane Gustav approached the U.S. Gulf coast, forcing the closure of refineries and evacuation of offshore rigs.
Gustav will likely make landfall later today as a Category 3 hurricane, the National Hurricane Center in Miami said. The storm has shut three-quarters of oil output in a region that accounts for 26 percent of U.S. oil production and 14 percent of its natural-gas output.
``This is right on the bull's eye,'' said Anthony Nunan, assistant general manager for risk management at Mitsubishi Corp. in Tokyo. ``Massive power supply cuts are likely and it's hard to prepare a refinery against any kind of flooding. If there's a very prolonged outage, a big rally is possible.''
Crude oil for October delivery rose as much as $2.54, or 2.2 percent, to $118 a barrel in electronic trading on the New York Mercantile Exchange. The contract traded at $116.48 at 11:51 a.m. in Singapore. Prices, which dropped 7 percent in August, are up 22 percent this year.
Gulf Coast refineries have cut at least 1.56 million barrels a day of production, about 9.8 percent of the U.S. total. Eight refineries have announced shutdowns, while a further five have reduced capacity.
Personnel from more than 70 percent of the platforms and rigs in the Gulf have been evacuated as the storm approaches, the U.S. Minerals Management Service said in a statement on its Web site yesterday. About 1.25 million barrels a day of oil and 6.09 billion cubic feet of gas have been shut, or more than 96 percent of offshore oil output and 82 percent of gas production.
`In the Way'
Nymex electronic trading opened early today to allow traders to respond to Gustav. Trades will be dated Sept. 2 because of the U.S. Labor Day holiday today.
``There are still some production rigs in the way,'' said Gerard Burg, energy and minerals economist at National Australia Bank Ltd. in Melbourne. ``We're just going to have to wait and see what kind of impact it's going to have.''
Gasoline for October delivery gained as much as 10.3 cents, or 3.6 percent, to $2.9572 a gallon on the exchange, and traded at $2.908 at 10:27 a.m. Singapore time.
Brent crude oil for October settlement rose as much as 1.3 percent to $115.56 a barrel on the ICE Futures Europe Exchange, and traded at $114.55 at 10:39 a.m. Singapore time.
The Gulf of Mexico normally produces about 1.3 million barrels of oil and an estimated 7.4 billion cubic feet of gas a day, according to the agency, part of the U.S. Interior Department.
Natural gas for October delivery fell 19.7 cents, or 2.5 percent, to $7.746 per million British thermal units.
Chevron Corp.'s Sabine Pipe Line LLC began to shut its pipelines and the Henry Hub natural gas connection point as mandatory evacuations were declared. Henry Hub, in Erath, Louisiana, is the pricing point for Nymex natural-gas futures.
BHP Billiton Ltd., the world's largest mining company, shut the $1.1 billion Neptune oil project in the Gulf of Mexico and evacuated staff as Hurricane Gustav approaches.
Hurricane Katrina struck the U.S. Gulf coast on Aug. 29, 2005, with winds near 130 miles-an-hour, flooding 80 percent of New Orleans, killing 1,800 people in Louisiana and Mississippi and causing more than $80 billion in damage.
Katrina reached Category 5 status, the strongest type of hurricane, before hitting land. Oil rose as much as 5.4 percent on Aug. 30 to a then-record $70.85 a barrel after Katrina closed 95 percent of offshore output in the Gulf of Mexico.
Almost 19 percent of U.S. refining capacity was idled because of damage and blackouts caused by hurricanes Katrina and then Rita, which made landfall Sept. 24, 2005.
Gustav, earlier downgraded from Category 4, was packing winds of 115 miles an hour, the hurricane center said in its 10 p.m. local time advisory. ``Data suggest that the landfall intensity of Gustav will not be every different from its current category three strength,'' the center said.
Oil futures have fallen 20 percent from the record $147.27 a barrel reached on July 11 as the rising U.S. dollar reduced the appeal of commodity investments and on signs of slowing global economic growth.
``Fairly weak'' demand and the International Energy Agency's early commitment to free up reserves if needed has damped the reaction to Hurricane Gustav, Edward Meir, an analyst at MF Global Ltd. in Stamford, Connecticut, said in a Bloomberg television interview.
While major damage may push oil as high as $125 a barrel, prices are otherwise likely to quickly resume their slide after Gustav has passed, he said.
``If it's Category 3 without any major damage, $105 is possible'' by October, Meir said.