Oil rose above $79 on Monday to its highest level in almost eight weeks while tropical storm Alex forced Mexico to slow oil exports and some producers in the United States to evacuate platforms and curb output. Japan's Nikkei average fell 0.3 percent on Monday, with the dollar little changed against a basket of currencies, despite an upbeat sign for the macroeconomic outlook on Friday from U.S. consumer sentiment, which rose in June to its highest since January 2008. Over the weekend Alex became the first named storm of the Atlantic hurricane season, which runs from June through November and forecasters expect will be an active one, possibly matching the record-breaking 2005 season. "The first hurricane always heightens concern, and this season is expected to be a bad one," said Jonathan Barratt, managing director at Commodity Broking Services in Sydney. "There is concern that production would be reduced."
U.S. light, sweet crude rose as much as 52 cents to $79.38 a barrel, the highest intra-day price since May 6. A settlement above $79.30 would send prices to a higher range, Barratt said. The price was up 36 cents at $79.22 in the Asian session, after rising 2.2 percent last week, partly on concern that Alex would veer north and hit U.S. output in the northern part of the gulf. London Brent crude gained 40 cents to $78.52. Mexico closed two of its main Gulf of Mexico oil exporting terminals on Sunday as tropical, depression Alex moved over the Yucatan peninsula, the government said. The ports of Cayo Arcas and Dos Bocas handle combined exports of more than 1.1 million barrels per day (bpd), or about 80 percent of Mexico's shipments abroad, which mainly head to U.S. refineries. But Mexican state-run oil company Pemex said on Sunday its platforms in the Campeche sound, which pump almost 2 million bpd, were working normally, and there was no evacuation plan yet.
Shell Oil shut subsea production at its Auger and Brutus platforms in the Gulf of Mexico because of the threat from Alex, a website posting said on Sunday. Personnel not essential to operations were evacuated from BP's Atlantis, Mad Dog and Holstein platforms in the Gulf of Mexico, a recorded telephone message said. Tropical depression Alex moved into the southwestern Gulf of Mexico and was likely to regain storm status on Monday, the U.S. National Hurricane Center said, heading towards the Mexican state of Tamaulipas, which borders Texas, as a hurricane. The U.S. National Oceanic and Atmospheric Administration forecast 14 to 23 named storms for this year's season, with 8 to 14 developing into hurricanes. Three to seven of those could be major Category 3 or above hurricanes. Large patches of thick oil from BP's Gulf of Mexico oil spill washed ashore in Mississippi for the first time on Sunday, although Alex wasn't expected to interfere with clean-up operations.
OPEC secretary general Abdullah al-Badri said on Sunday that he was comfortable with oil prices at their current level and did not expect production levels to change between now and October. World leaders agreed on Sunday to take different paths for cutting budget deficits and making their banking systems safer, a reflection of the fragile economic recovery in many countries. "A balance has to be found that doesn't affect growth," Barratt said. "The perceived feeling is that controlling deficits will restrain growth. Then oil demand growth won't be as big as we were expecting." The oil market's attention later in the week was set to turn to June statistics of U.S. unemployment to be published on Friday. Traders and investors are seeking evidence that the world's largest economy and oil-consuming nation continues to recover from the most severe recession of the post-war era. Should the unemployment rate rise to 10 percent or higher, "that will be a concern because that will affect oil demand," Barratt said.
Over-the-counter oil trading faces tighter rules. Last Friday, U.S. lawmakers hammered out a historic overhaul of financial regulations, handing President Barack Obama a major domestic policy victory. Dozens of House Democrats had threatened to vote against a ban on swaps trading on grounds the trade would move overseas. Instead a compromise solution allows banks to stay involved in foreign-exchange and interest-rate swaps dealing, which form the bulk of the $615 trillion over-the-counter derivatives market. They also could participate in gold and silver swaps and derivatives designed to hedge banks' own risk. But they would need to spin off dealing operations that handle agricultural, energy and metal swaps, equity swaps and uncleared credit default swaps.
