Crude fluctuated on Thursday as a tropical storm threatened oil and natural gas output in the energy-rich US Gulf of Mexico. Although the storm is relatively weak, oil companies evacuated staff and shut down production.
The Miami-based US National Hurricane Centre said on a weather bulletin that tropical storm Don carried winds of 45 miles per hour - 75 kilometres per hour - prompting BP, Exxon Mobil and Anadarko Petroleum to remove personnel from offshore oil platforms in the western Gulf.
The US Bureau of Ocean Energy Management, Regulation and Enforcement reported that 95,000 barrels per day, or 6.8% of Gulf oil production, was halted. The NHC said the storm, which is unlikely to strengthen to hurricane status, would reach southern-central Texas on Friday night, local time. It is unlikely to inflict long-lasting damage, analysts and weathermen said.
The energy market pays close attention to tropical storms and hurricanes as they can disrupt production and refining. The Gulf of Mexico is home to 29% of US crude output and 13% of natural gas production. Moreover, coastal refineries in the region for 43% of total US capacity, according to the Energy Information Administration.
Hurricanes Rita and Katrina in 2005 inflicted damage to the energy industry, including sinking several platforms. Ike and Gustav, in 2008, also cut oil output.
ICE September Brent settled down 7 cents at USD 117.36 a barrel. Earlier, it set a session high of USD 118.71 a barrel. Nymex September West Texas Intermediate rose 4 cents to USD 97.44 a barrel. The storm's threat pushed the price difference between landlocked WTI and Gulf of Mexico crudes such as Light Louisiana Sweet and Mars to record levels.
WTI traded at an all-time discount of USD 22.75 a barrel against similar quality LLS crude, according to Reuters data. Between 1999 and 2010, WTI traded roughly at parity against LLS, but a glut since then in Cushing, the Oklahoma pipeline and storage hub that serves as the delivery and pricing point for WTI, has knocked down the relative value of the benchmark.
WTI also plunged to unusually low levels against lower-quality Mars crude.
The WTI-Brent spread widened to a session high of USD 20.91 a barrel, approaching an all-time high of more than USD 23 a barrel set this month.
Some analysts believe the price differential between the benchmarks could explode to a record USD 50 a barrel by mid-2012.
