Oil continues higher on worries over hurricane Felix, OPEC output

Oil continued higher on ongoing worries hurricane Felix might disrupt supplies in Mexico, and continued speculation OPEC will not raise production when it meets in September.

Twenty-one out of 23 analysts polled by Thomson Financial said the cartel was likely to keep production levels unchanged at its Sept 11 meeting on worries that the current market turmoil might crimp oil demand.

'OPEC is like everyone else. It is going to wait for more clarity before they make any decisions on policy,' said Alaron analyst and trader Phil Flynn.

Meanwhile, traders were tracking hurricane Felix, which developed into a potentially catastrophic category 5 storm overnight, as it swept through the southern Caribbean towards Mexico's Yucatan peninsula and the Bay of Campeche.

'Oil production operations in the region have not been affected yet, but companies will remain alert and precautionary shut-downs could occur in the next few days,' said analysts at Barclays (nyse: BCS - news - people ) Capital.

At 2.49 pm, London's benchmark Brent crude contracts for October delivery were up 67 cents at 73.36 usd per barrel.

Meanwhile, New York crude contracts for October delivery were up 43 cents at 74.47 usd per barrel in electronic trades. The New York Mercantile Exchange was closed Monday for the Labor Day holiday.

Oil prices rallied a couple of weeks ago when hurricane Dean, the first hurricane of the Atlantic season, struck Mexico's Yucatan Peninsula before crossing into the southern Gulf of Mexico and shutting down Mexican output.

Although forecasters do not expect Felix to veer as far north as Dean, and therefore miss US oil installations in the Gulf of Mexico, there is always the risk that the hurricane will change course.

Even if it does not, Petromatrix analyst Olivier Jakob says oil operators in the region will still need to make decisions on precautionary evacuation of oil fields, just as they did with hurricane Dean.

Atlantic storms aside, analysts say oil is still benefiting from a new plan announced Friday by US President George Bush to help borrowers hit by the recent mortgage crisis.

The plan, which came alongside reassuring comments from Fed chairman Ben Bernanke, have helped ease market concerns that oil demand might wane if the US mortgage crisis and related global lending crunch ends up crimping growth.

Deutsche Bank (nyse: DB - news - people ) analyst Joel Crane said traders have taken the comments by top US government officials as indicating the country is intent on dealing 'forcefully with the mortgage situation... and the global credit crunch'.

The credit crunch, which has helped take oil off an all-time record of 78.77 usd a barrel hit on Aug 1 in New York, is affecting all commodity markets at present.

As regards oil, fears that consuming countries will cut back on crude purchases if the credit crunch worsens are making OPEC members ever more intent on leaving output levels unchanged at their September meeting.

As a result, US crude stocks are starting to decline rapidly from relatively high overall levels.

The US Energy Department said last week that crude stocks fell by almost 3.5 mln barrels in the week ending Aug 24, in part because of a large decline in imports.

The agency also reported that gasoline inventories fell by 3.6 mln barrels on the week, leaving overall stocks well below the lower end of the average range for the time of year.
Source : http://www.forbes.com