By Margot Habiby
Aug. 31 (Bloomberg) -- Crude oil and gasoline futures rose as Hurricane Gustav approached the Gulf of Mexico, halting most oil and gas output and shutting local refineries.
Gustav will make landfall along the Gulf Coast sometime tomorrow as a ``major'' hurricane, according to the U.S. National Hurricane Center. It forced the mandatory evacuation of New Orleans and shut refineries operated by Valero Energy Corp., ConocoPhillips, Marathon Oil Corp. and Exxon Mobil Corp.
``It's a huge storm, and it's got the potential to cause all kinds of problems,'' said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut. ``There's a lot of concern that this is something that could really, really damage infrastructure badly, and this could be another instance of Katria-Rita or worse.''
Crude oil for October delivery rose $1.67, or 1.5 percent, to $117.13 a barrel at 5 p.m. on the New York Mercantile Exchange. Prices are up 22 percent this year.
Gasoline for October delivery gained 6.58 cents, or 2.3 percent, to $2.92 a gallon on the exchange.
To see oil ``up two and a half dollars is a muted reaction to what they're calling the mother of all storms,'' Beutel said.
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 tomorrow.
Gustav was about 215 miles (350 kilometers) south-southeast of the Mississippi River mouth at 4 p.m. New Orleans time and was packing winds of 115 miles an hour. The storm, which may reach Louisiana as early as midday tomorrow, is forecast to strengthen as it crosses the Gulf.
Refinery Capacity
Gulf Coast refineries have cut at least 1.56 million barrels a day of production, about 9.8 percent of the U.S. total. Seven refineries have announced shutdowns, and 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 today in a statement on its Web site. 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.
Natural gas for October delivery fell 6.1 cents, or 0.8 percent, to $7.882 per million British thermal units.
Chevron's Sabine Pipe Line LLC began to shut its pipelines and the Henry Hub natural gas connection point in Louisiana as mandatory evacuations were declared. Henry Hub, in Erath, Louisiana, is the pricing point for Nymex natural-gas futures.
Gulf Capacity
The Gulf of Mexico accounts for 26 percent of U.S. oil production and 14 percent of natural-gas output. The Gulf 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.
``We're more prepared for this storm than we ever have been for any hurricane that I remember,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ``We're better prepared, and demand isn't that strong anyway, so I'm about as optimistic as I can be in this type of disastrous situation.''
Hurricane Katrina, which reached Category 5 status, the strongest type of hurricane, 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 Rita in 2005.
``You get a couple of rigs shut down, keeled over from this hurricane, and this is going go take days or weeks to fix,'' said Brad Samples, a commodity analyst for Summit Energy Inc. in Louisville, Kentucky. ``The bigger problem is on the refining side and the potential impact on all the refineries that string along the Gulf Coast.''
Almost half of U.S. refining capacity is centered along the Gulf Coast, and refineries have been operating at less than 90 percent of capacity all year, according to the Energy Department.
Regular gasoline, averaged nationwide, rose 0.5 cent to $3.687 a gallon, AAA, the nation's largest motorist organization, said today on its Web site. Prices reached a record $4.114 a gallon on July 17. Gasoline cost $3.676 a gallon in Louisiana, up from $3.655 yesterday.
To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.
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