The price of a barrel of crude oil climbed above $115, on Tuesday, as traders weighed up the potential threat to oil supplies in the Gulf of Mexico, the home of more than a fifth of US oil production, from the incoming hurricane Gustav.
Currently escalating out at sea in the Caribbean and on course to hit Haiti and the Dominican Republic with 80 mph winds, according to one National Hurricane Center, Gustav is the latest in an increasingly long line of actors to heighten fears of disruption to the oil supply chain.
Despite a strengthening of the dollar and the reopening of the BTC pipeline through Georgia, fears over the impact of the hurricane stemmed the potential sharp drop in oil prices.
Crude oil dropped down 39 cents to $114.74 during electronic trading on Globex, on Tuesday. Crude for October delivery fell 6 cents to $115.05 a barrel by 06:58 GMT, while London Brent crude was down 1 cent at $114.02 a barrel. But tropical hurricane ensured that prices would closer higher.
“Prices surged because Gustav appears to be strengthening as it moves toward the Gulf,” said Michael Fitzpatrick, Vice President for energy risk management at MF Global Ltd. in New York.
Meanwhile, while traders are prepared to gamble on what level prices will close at, others are not so willing to take a risk.
Anglo-Dutch energy giant Royal Dutch Shell said it was planning to evacuate some staff from its Gulf facilities because of Gustav.
Shell said in a statement: “Given the current track for Gustav and the expectation that it might enter the Gulf of Mexico this weekend, we are making logistical arrangements to evacuate staff who are not essential to production or drilling operations.”
The nomination for best supporting actor, to the hurricane, in keeping the price of oil from dropping is the ongoing crisis in Georgia.
“I think overall the trend of the market is bearish right now, but the hurricane premium as well as the Russia-NATO premium is what's keeping the market from dropping further,” said Jonathan Kornafel, Asia director at US-based options trader Hudson Capital Energy.
On Monday Russia's parliament urged the Kremlin to recognise two rebel regions of Georgia as independent states, raising alarm and fears over security from the West.
Oil will also watch the dollar, which climbed towards a six-month high against the euro and jumped against both the Australian and New Zealand dollars on renewed jitters over the financial sector.