Oil prices rose on Monday as tropical storm Isaac entered the energy-rich Gulf of Mexico, forcing companies such as BP, Chevron and Royal Dutch Shell to shut down oil and natural gas production from offshore platforms and coastal refineries.

The storm, which is expected to gain hurricane strength before landfall on Wednesday, is the biggest threat to the energy industry since hurricanes Gustav and Ike in 2008. Meteorologists forecast Isaac will make landfall in the vicinity of New Orleans, the city that was devastated on August 29 2005 by hurricane Katrina.

Isaac has already forced companies to shut down nearly a quarter of their output in the Gulf of Mexico, or about 333,800 barrels a day, according to the US Bureau of Safety and Environmental Enforcement, which oversees offshore production. The Gulf accounts for about 23 of the country’s oil output.

Oil companies also said they were preparing to shut down coastal refineries in Louisiana, home of almost 20 per cent of the country’s total refining capacity, due to fears of flooding in low lying areas.

Hurricanes and tropical storms wield significant influence in commodity markets, triggering wild price moves. Katrina and Rita in 2005 forced shutdowns of natural gas and oil production and refinery activity along the Gulf coast, sending energy prices sharply higher. Gustav and Ike in 2008 and Ivan in 2004 also inflicted damage.

The US National Hurricane Centre on Monday said tropical storm Isaac was packing winds of near 65 miles per hour, or 100km per hour, and forecast it would become a hurricane “in a day or so”. The centre expected a landfall near New Orleans on Wednesday, the seventh anniversary of hurricane Katrina.

In London, ICE October Brent crude oil rose to $115.50 a barrel in early trading, but later pared gains to trade 81 cents higher to $114.40 a barrel. Trading was thin because of a public holiday in the UK. In New York, Nymex October West Texas Intermediate rose to $97.10 a barrel, up 95 cents on the day.

US wholesale gasoline prices also rose sharply after an explosion and fire damaged the 950,000 b/d Paraguaná refining complex in Venezuela, the world’s second largest after the Jamnagar refining complex in India. Nymex October RBOB gasoline prices jumped to a four-month high of $3.20 per gallon, up 3.81 per cent. Caracas said the refinery could restart this week, but the market fears a more prolonged outage that will tighten supplies of gasoline and other oil products.

Oil analysts said the explosion at the Paraguaná refining centre could have a bigger impact on prices than tropical storm Isaac as it comes as inventories of gasoline and middle distillates such as diesel in the US were already falling.

US natural gas prices also rose as companies shut down some facilities in the Gulf of Mexico. The Henry Hub interconnector, a key gas pipeline hub in Louisiana that provides access to major consuming regions throughout the country and serves as a pricing point for gas futures, remained open.

The energy market reaction will depend of the final path and damage of the storm, but also about policy reaction. Washington could offset any supply disruption by releasing its petroleum strategic reserve as it did in 2005 after hurricanes Rita and Katrina. In 2008, the US made short-term oil loans to Marathon, Placid, ConocoPhillips, Citgo and Alon USA after their supplies were cut off temporarily.

Source: http://www.ft.com/intl/cms/s/0/ba95bde8-f035-11e1-b7b2-00144feabdc0.html#axzz24l7bnxD0