LONDON – Oil rose a dollar on Wednesday as a tropical storm strengthened and headed toward the Gulf of Mexico, threatening U.S. oil and gas rigs still recovering from last year's devastating hurricanes.
Concern about the storm's effect on energy supplies to the world's largest consumer came as U.S. data showed crude inventories fell more than analysts had expected last week due to a slow down in foreign imports.
London ICE Brent crude rose $1.00 to $76.89 a barrel by 1820 GMT, bringing within striking distance of its July record of $78.18. U.S. light crude rose 90 cents to $75.81 a barrel.
Brent is at a rare premium to U.S. oil because European markets are more directly affected by real and feared supply disruptions in Nigeria, Russia and the Middle East.
Tropical Storm Chris intensified over the Caribbean and could become the year's first hurricane by Thursday, the Miami-based National Hurricane Center said. The storm's forecast path takes it into the Gulf early on Monday.
Hurricanes last year shut in a quarter of U.S. crude and fuel output and sent oil to record highs. Around 12 percent of the U.S. Gulf of Mexico's 1.5 million barrels per day (bpd) oil output is still offline.
"There is a little bit of excitement on the market due to the tropical storm," said Chip Hodge, Managing Director at John Hancock Financial Services in Boston.
U.S. government data released on Wednesday showed crude oil stocks fell 1.8 million barrels last week, while gasoline inventories fell 100,000 barrels last week.
Demand growth from drivers on summer vacation stayed strong, despite high prices at the pump. Over the past four weeks, U.S. motorists have consumed 1.6 percent more gasoline than during the same period a year ago.
The U.S. consumes around 40 percent of the world's entire supply of gasoline.
"I thought we'd see (gasoline) demand down, but it remains tenacious," said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois.
SUPPLY CONCERN, MIDDLE EAST
Another attack on Iraq's crude export pipeline to Turkey on Monday, continued fighting between Israel and Hizbollah and Iran's nuclear stand-off with the West all supported prices.
Hizbollah guerrillas fired more rockets into Israel on Wednesday than any previous day of the 22-day-old war.nL01338765
Concerns over Iran persisted as President Mahmoud Ahmadinejad insisted on the country's right to produce nuclear fuel, despite a U.N. resolution demanding Tehran suspends its nuclear activities by Aug. 31 or face the threat of sanctions.
U.S. Energy Secretary Bodman said Wednesday that oil prices would move higher if exports from Iran were cut, but he reiterated that the world's consumer nations are prepared to deal with such a cutoff by using their strategic oil stocks.