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Bloomberg: Oil Rises to Record for Seventh Day on Idled Gulf Production ($83.32 a barrel)

By Mark Shenk

Sept. 20 (Bloomberg) — Crude oil in New York rose to a record for a seventh day after the U.S. said that production in the Gulf of Mexico was shut in because of a storm threat.

More than 360,000 barrels, or 28 percent, of daily oil output was idled, the U.S. Minerals Management Service said today in a statement. Prices were already higher on signs that U.S. interest-rate cuts and a falling dollar will bolster demand.

“The storm threat and falling dollar are pushing us higher,” said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. “We will see even bigger inventory draws in next week’s statistics as a result of the evacuations in the Gulf.”

Crude oil for October delivery rose $1.39, or 1.7 percent, to settle at $83.32 a barrel at 2:50 p.m. on the New York Mercantile Exchange. Futures touched $83.90, the highest since the contract began trading in 1983. Prices are up 38 percent from a year earlier.

The October futures contract expired at the end of trading today. The more-active November contract rose 93 cents, or 1.2 percent, to close at $81.78 a barrel.

Today’s intraday high was less than a dollar from the all- time inflation-adjusted high reached in 1981 when prices jumped because Iran cut oil exports. The cost of oil used by U.S. refiners averaged $37.48 a barrel in March 1981, according to the Energy Department, or $84.73 in today’s dollars.

Evacuated Staff

Royal Dutch Shell Plc, Europe’s biggest oil company, said it evacuated more workers from its offshore facilities and will shut down remaining platforms today because of the storm threat. BP Plc, Chevron Corp. and ConocoPhillips are among companies that have evacuated workers from platforms and rigs in the region.

A weak low-pressure system with the potential to become a subtropical storm as early as today has formed in the eastern Gulf, the U.S. National Hurricane Center said.

The Gulf accounts for about 25 percent of U.S. oil production, according to government figures. Prices surged to a record in 2005 after hurricanes Katrina and Rita roared through the region, shutting platforms, refineries, pipelines and ports.

U.S. crude-oil supplies fell 3.87 million barrels in the week ended Sept. 14, the 10th drop in 11 weeks, the Energy Department reported yesterday. The decline left inventories 7.4 percent higher than the five-year average for the period, the department said.

“The market is relentless,” said Tom Bentz, a broker at BNP Paribas in New York. “The fundamentals don’t justify these prices but the prices are holding firm. We are due for a correction but nobody is willing to step in front of this.”

The dollar dropped to a record low against the euro today on speculation U.S. interest rates will fall further, making oil cheaper in the countries using other currencies. Oil rose after the Federal Reserve cut rates this week to bolster the economy, which has been hit by subprime-mortgage losses.

Buoyant Market

“This is a remarkably buoyant market,” said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. “There’s been a reevaluation about what the housing crisis means for oil demand and prices over the last month. We overreacted to the downside.”

In the past, OPEC members have said a falling dollar justified higher prices because oil-producing countries sell oil in dollars and often buy goods in euros, pounds and other currencies. The Organization of Petroleum Exporting Countries agreed last week to produce an extra 500,000 barrels a day starting Nov. 1 to meet fourth-quarter demand.

In U.S. dollars, West Texas Intermediate, the New York- traded crude-oil benchmark, is up 36 percent so far this year. Oil is up 28 percent in euros, 34 percent in British pounds and 31 percent in yen.

Saudi Link

Losses in the dollar accelerated after London’s Daily Telegraph newspaper reported, citing analysts, that Saudi Arabia may drop its currency’s link to the dollar.

In an unprecedented move, the Saudi central bank decided against following the U.S. Federal Reserve’s half-point reduction in the key interest rate to 4.75 percent on Sept. 18. Saudi Arabia’s economy is booming because of record oil prices.

“The Saudi headlines helped push us higher because anything that weakens the dollar will push oil higher,” Barakat said. “There’s been an inverse relationship between the strength in the dollar and the price of oil this year.”

Brent crude oil for November settlement rose 62 cents, or 0.8 percent, to $79.09 a barrel on the London-based ICE Futures Europe exchange, the highest since the contract started in 1989.

The profit margin, or crack spread, for turning crude oil into fuels has tumbled 75 percent in the past in four months. The margin fell 8.8 percent to $7.4088 a barrel today, the lowest since Jan. 17, based on closing futures prices in New York. It rose to $30.479 on May 17, the highest since at least 1989.

Heating oil for October delivery rose 1.56 cents, or 0.7 percent, to $2.2609 a gallon in New York, the highest closing price since trading began in 1978. Gasoline for October delivery rose 4.17 cents, or 2 percent, to $2.1351 a gallon, the highest close since July 31.

To contact the reporter on this story: Mark Shenk in New York at [email protected] .

Last Updated: September 20, 2007 16:11 EDT

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