Oil futures falter on debt, storm concerns

Oil futures slipped 3 cents to $97.38 a barrel for West Texas Intermediate crude. In London, Brent oil futures fell 5 cents to $117.38.

Tony Gutierrez/AP/File
Vehicle traffic is seen moving along a busy thoroughfare by a ConocoPhillips filling station July 14, 2011, in Irving, Texas. Oil futures slipped July 28, 2011, in the faces of worries about a US default and tropical storm Don in the Gulf.

NEW YORK – Oil was lower Thursday afternoon, as traders waited to learn more about the possible impact of a tropical storm in the Gulf of Mexico, the wrangling over the debt ceiling in Washington and the debt crisis in Europe.

Tropical storm Don formed in the Gulf near Mexico's Yucatan peninsula on Wednesday and is expected to make landfall near Corpus Christi, Texas, on Friday night or Saturday morning. Its path is south of the mainoil and gas producing regions in the Gulf, but about 500 operating oil and gas rigs are in the storm's path, according to Rich Ilczyszyn, senior market strategist at brokerage service Lind-Waldcock.

Oil companies with offshore platforms in the region — including ExxonMobil, BP and Anadarko Petroleum — have begun to shut some oil and gas production and evacuate workers. A sustained drop in production could bring higher oil prices.

In afternoon trading of oil futures on the New York Mercantile Exchange, benchmark West Texas Intermediate crude fell 3 cents to $97.38 per barrel. In London, Brent crude gave up 5 cents at $117.38 per barrel.

Ilczyszyn said energy traders are mainly keeping their money out of the market, as they wait to see whether Washington can agree to raise the debt ceiling and avoid a possible default on federal obligations.

If they can't, analysts say the stock market and economic growth would fall sharply. That, in turn, would cut into oil demand and perhaps lower prices.

On the other hand, if the U.S. dollar loses value as the result of a default, it could trigger buying in commodities and push up oil prices. A lower dollar makes oil cheaper to overseas buyers because it is pricedin dollars. Also, traders see commodities like oil as a relatively safe investment in times of stock market volatility.

Meanwhile the value of the dollar and prospects for economic growth in Europe are being affected by the ongoing debt crisis in Europe. On Wednesday the dollar rose in response to another downgrade of Greek debt.

"The uncertainty is crazy," Ilczyszyn said. "That's why you see oil trapped in a $5 range." Oil has stayed between about $95 and $100 a barrel since the beginning of July.

In preparation for Tropical Storm Don, ExxonMobil says it has evacuated non-essential personnel from facilities in the path of the storm and is shutting down production that amounts to 8,000 barrels per day, a small fraction of what Exxon produces every day.

Shell says it will evacuate 195 people by the end of the day and shut production at one platform. BP has evacuated workers from three platforms, though only one was in operation at the time. Anandarko Petroleum says it has evacuated 185 workers and shut six platforms.

Forecasters do not expect the tropical storm to strengthen into a hurricane or to threaten refinery production on the Gulf coast.

U.S. drivers faced higher gasoline prices on Thursday, with the national average for a gallon of regular at $3.706, according to AAA, Wright Express and the Oil Price Information Service.

That's about a penny more than Wednesday and 96 cents higher than last year. It's the first time gasoline has risen past $3.70 in a month.

Natural gas prices dropped after the Energy Information Administration reported that the nation's natural gas supplies grew by 43 billion cubic feet in the past week. Analysts expected a smaller increase because the intense heat wave that blanketed the eastern half of the country last week led to high electricity demand. About 20 percent of the nation's electricity is generated with natural gas. During spikes in electricity demand, like last week, utilities rely on natural gas more heavily.

Natural gas prices fell 7 cents to $4.246 per 1,000 cubic feet. In other Nymex contracts for August, heating oilrose 1 cent to $3.1080 a gallon and gasoline lost 2 cents at $3.0598 a gallon.

of 5 stories this month > Get unlimited stories
You've read 5 of 5 free stories

Only $1 for your first month.

Get unlimited Monitor journalism.