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Crude Oil Price Firms As Traders Track Approaching Hurricane

Posted on: Saturday, 16 July 2005, 12:00 CDT

OIL prices were firmer yesterday, after plunging by more than dollars -2 a barrel in New York on Thursday, as traders attempted to anticipate what impact Hurricane Emily would have on key oil installations in the Gulf of Mexico.

Benchmark US light crude rose more than dollars -1 a barrel during trading yesterday but, by the close in NewYork, had eased to be up only 29 cents at dollars -58.09.

Julien Seetharamdoo, oil expert at Capital Economics in London, predicted crude prices would remain strong during the next month or so amid a continuing shortage of refining capacity during the US driving season.

The hurricane season can also be a magnet for oil speculators, who were very active in the market even before the storms started.

Seetharamdoo estimated that speculative fund buying probably accounted for between dollars -10 and dollars -15 of the per barrel oil price at the moment.

Hurricane Emily is the fifthnamed storm so far this season - and this is the earliest this number has been hit - leading some to worry that the impact of hurricanes on oil production this year could be worse than normal.

Emily is forecast to enter the south-west Gulf of Mexico on Tuesday, before making landfall close to the Texas-Mexico border near some oil and gas fields off the Texas coast.

Capital had been forecasting that the oil price would have been much weaker by now.

However, Seetharamdoo believes there could be a repeat of the 2004 pattern where oil fell back later in the year even as the northern hemisphere was entering a winter period during which demand for heating fuel is greater.

He said: "It is an ongoing story of low refining capacity and obviously still high demand both for gasoline and for crude oil. At the same time, crude oil stocks themselves are building up, which suggests we could see oil prices falling back a bit later on in the year . . .

"Oil prices fell back towards the end of (last) year, even though we entered the winter season, because you had lower demand for gasoline. It could well happen again."

However, Seetharamdoo added: "Over the next month or so, prices are going to stay pretty high."

Source: Herald, The; Glasgow (UK)

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