Oil surged nearly 4 percent Wednesday on the expectation that tropical storms will further hamper oil production in the Gulf of Mexico and squeeze supplies.
Benchmark U.S. crude on Wednesday jumped $3.32, or 3.9 percent, to finish at $89.34 per barrel in New York. Brent crude rose $2.91, or 2.6 percent, to end at $115.80 in London.
The government says Tropical Storm Lee forced oil companies to evacuate as many as 232 platforms over the weekend, more than a third of those operating in the region. The evacuations cut production of about 4 percent of the oil consumed daily in the U.S. By Wednesday workers had returned to all but 21 platforms.
The storm heightened concerns about oil and gas supplies. The Libyan rebellion already has shut down about 1.5 million barrels of oil exports per day from that country. And a series of fires, oil spills and other problems in the North Sea has helped cut a few hundred thousand barrels per day this summer from an area that already was in steep decline. Analyst Stephen Schork noted that North Sea production has fallen 45 percent since April 2003.
The International Energy Agency and the Energy Information Administration warned earlier this year that production losses would help create a worldwide shortage in the second half of the year. Developed nations, including the U.S. and European countries, decided in June to release 60 million barrels from emergency stockpiles to help make up the shortfall. Analysts said that may not be enough, yet IEA's new chief said Wednesday it's unlikely that countries will dip further into emergency supplies.
Now that Tropical Storm Lee has dissipated, traders are watching Tropical Storm Maria in the Atlantic. It's still 3,000 miles away from the U.S., but analysts are betting it will be the next of many storms to hamper production this hurricane season, which runs through November. The National Hurricane Center expects as many as 18 named storms this year, with as many as half of them at hurricane strength.
"These storms are going to make it tough for those guys to get their rigs back up and running," PFGBest analyst Phil Weiss said.
Besides lost oil production, tropical storms can force refineries to temporarily close, slowing down the production of gasoline and other fuels. Hurricane Irene did just that in August, as it shut down some East Coast fuel terminals and refineries for a time. Storms also can disrupt shipping lanes and slow the pace of oil imports.
The last time hurricanes made landfall along the Gulf of Mexico was in September 2008. Hurricanes Gustav and Ike hit within two weeks of each other, destroying 60 oil and gas platforms and damaging more than 100 others, according to government regulators. Oil production was hampered for several months following the storms.
Oil was also helped by rising stock markets. The Dow Jones industrial average was up more than 2 percent. The broader S&P 500 and the Nasdaq composite were almost 3 percent higher in afternoon trading.
Gasoline pump prices were little changed on Wednesday at a national average of $3.657 per gallon, according to AAA, Wright Express and Oil Price Information Service. That's almost 98 cents higher than a year ago. Gasoline is near the record high for this time of year, set in 2008.
In other energy trading, heating oil rose 6.54 cents to finish at $3.0756 per gallon and gasoline futures rose 8.54 cents to end at $2.908 per gallon. Natural gas was virtually unchanged at $3.94 per 1,000 cubic feet.
Chris Kahn can be reached at http://twitter.com/ChrisKahnAP