Oil Rises as Ice Storm Snarls US Pipelines
Oil leapt to $90 Tuesday as a deadly Midwest ice stormparalyzed three big pipelines feeding a key U.S. crude storage hub and fog delayed shipping along the Texas coast, traders said.
A decision by the U.S. Federal Reserve to cut interest rates by a quarter point was also seen as supporting commodities prices by potentially reviving economic growth and weakening the value of the dollar.
U.S. light, sweet crude rose $2.14 to $90.00 per barrel by 1930 GMT while London Brent crude traded up $1.90 to $89.94.
"Today is mostly about ice and fog, and less about the Fed cut," said Peter Beutel, president of Cameron Hanover in New Canaan, Connecticut.
A deadly ice storm in the U.S. heartland brought operations at the Cushing, Oklahoma, storage hub -- delivery point for U.S. crude futures -- to a near standstill and threatened supplies to the region's refineries.
The storm knocked out power to more than 800,000 customers and forced Enbridge and TEPPCO to shut more than 20 million barrels of oil terminal storage. Several pipelines, including the 350,000 barrel per day Seaway pipeline from the Gulf Coast, also reduced or halted throughput.
Adding support, fog along the Texas coast delayed more than 60 vessels from entering the nation's biggest petrochemical ports. Officials said some traffic resumed early Tuesday, but they added that the fog could return later in the day.
Sea fog is common along the Gulf Coast during the autumn and winter but can sometimes become severe enough to disrupt crude oil supplies and force coastal refineries to slow fuel production.
Soupy fog in late November triggered a slowdown in oil imports that helped push U.S. crude inventories to their lowest level since March 2005.
"I think the market is way up not so much on supply and demand issues but rather getting supplies from point A to point B. We have had fog in the Gulf, pipeline (snags), ice storms," said Phil Flynn, analyst at Alaron Trading in Chicago.
The outages helped end a slump that has dragged oil prices off a record high above $99 a barrel in November amid concerns that a slowdown in the U.S. economy could damp demand growth in the world's top consumer.
The U.S. Energy Information Administration on Tuesday slashed its world oil demand growth for the first quarter of 2008 by 260,000 barrels per day, with total demand estimated at 87.44 million bpd.
But it said it still expected the world energy market to be tight in 2008, with OECD days of forward crude oil demand cover falling to the lowest in more than three years by February.
U.S. crude oil inventories, running at their lowest since March 2005, are expected to have slipped another 200,000 barrels during the week to Dec. 7, according to a Reuters poll ahead of data due Wednesday.