Crude Oil prices jumped towards $120 a barrel on Thursday on the back of concerns that tropical storm Gustav, which may strengthen to become a hurricane before it reaches Louisiana’s coast, will disrupt oil and gas production in the Gulf of Mexico this weekend.
Royal Dutch Shell, BP and ConocoPhillips have already begun to cut production in preparation for the arrival of Gustav, forecast to become the worst Gulf of Mexico hurricane since Katrina.
Shell are set to evacuate 870 workers in the next two days, to add to the 400 they have already moved. ConocoPhilips stopped output at its Magnolia platform and Exxon is making preparations in its refineries along the coast, for the storm.
The market saw a fourth day of gains for crude which rose by as much as $1.74, (1.5%), to $119.89 a barrel on Thursday on the New York Mercantile Exchange. It was trading at $119.36 at 13:06 GMT.
The price of oil has gone up 3.3% since Gustav initially formed in the Caribbean Sea on August 25.
Natural gas for September delivery also gained by as much 4.9%, to $8.808 a million British Thermal units, in New York. Gasoline futures rose 1.2% to $3.1025 a gallon.
In Europe, light, sweet crude for October delivery was up $1.41 to $119.56 a barrel in electronic trading on the New York Mercantile Exchange.
John Hall, Managing Director of London-based consultants John Hall Associates, said: “If stocks were at high levels, the threat of a supply disruption wouldn't matter as much.
“But inventories need to build up further in the OECD, and in the US they're low.”
Gustav may have the potential to halt 1.2 million barrels a day (bpd) of crude oil production if it strikes the U.S. Central Gulf Coast, home to a quarter of US crude oil production and 15% of its natural gas output, according to forecaster Weather Insight.
There is a 70-75% chance of it reaching the region, by which time it will likely be a Category 3 hurricane.
The storm system was 80 miles east of Kingston, Jamaica, and heading southwest at 8 mph, the National Hurricane Centre said in its latest report. The Centre expects Gustav to turn west- northwest tomorrow and regain hurricane strength over the coming 48 hours.
Commenting upon the impending storm Thomas Stenvoll, energy strategist at UBS, said: “It is on track to pose a sizeable threat to both upstream and downstream production capacity.
“The impact of Gustav on the downstream sector could be felt more acutely - at least in the short term as there is no US government inventory that can be released,” he added.
