Oil climbed to $73 a barrel today as fears output in the US Gulf could be cut by a gathering storm outweighed growing unease over a global credit crunch.
US crude futures rose 87 cents to $73.25 a barrel by 12.45pm, adding to a 76-cent gain the previous session. London Brent crude climbed 67 cents to $71.18 a barrel.
Shell shut in 5 million cubic feet per day of gas production in the Gulf of Mexico and began evacuating non-essential personnel due to a developing tropical depression in the region.
The weather system will likely strengthen into a tropical storm before hitting oil and gas-producing south Texas coast tomorrow, the US National Hurricane Center said.
Other energy companies operating in the Gulf, which produces roughly a third of US domestic oil and gas production, were monitoring the tropical depression, this year's fifth, which formed in the central Gulf.
"The US energy complex is in weather trading mode and actively anticipating supply disruption due to the current tropical storms/depressions," said Olivier Jakob of Petromatrix.
Tropical Storm Dean also formed in the Atlantic Ocean midway between Africa and the Caribbean on Tuesday, and forecasters said it could become the first Atlantic hurricane of 2007 later in the week, although it was days away from reaching land.
But bullish sentiment was limited by the growing subprime mortgage crisis, which has rattled equity markets. Global stocks fell as a US fund yesterday tried to stop clients withdrawing cash to avoid investments at a discount, while a Canadian trust could not find the funds it needed to repay outstanding asset-backed commericial paper.
"The fall out from credit markets is not yet over," Harry Tchilinguirian, oil analyst at BNP Paribas, said in a report.
"The more prolonged the weakness in equities is, the more negative market sentiment can turn. And in the short run for oil, this could prompt a further liquidation of net long positions built up by non commercial players."
European stocks fell for a second day today, while Japan's Nikkei share average sank more than 2 per cent to hit their lowest level this year. OPEC warned today that a slowing US economy and the global credit crunch could cut oil consumption this year.
The focus later today will shift towards weekly US inventory data, expected to show a decline in crude stocks of 2.3 million barrels for the week through August 10 th.