NEW YORK: Oil prices shot above $120 a barrel and then pulled back yesterday as traders bet the US government would tap the Strategic Petroleum Reserve if Tropical Storm Gustav disrupts production. Gustav, approaching Jamaica with winds near 70 mph (113 kph), could regain hurricane strength later in the day and possibly enter the Gulf of Mexico — home of a quarter of US crude production — as a dangerous Category 3 storm early next week.
Fearful of a direct hit, oil companies raced to remove workers from vulnerable oil and gas platforms and brace the structures for heavy rain and wind.
Light, sweet crude for October delivery jumped as high as $120.50 a barrel on the New York Mercantile Exchange before pulling back to $115.75, down $2.50. Light trading heading into holiday weekend exacerbated the volatile trading.
In London, October Brent crude fell $2.22 to $114 a barrel. Oil was also being pressured by a government report showing that US natural gas supplies jumped much more than expected last week because of weak demand, sending prices for the fuel plummeting.
Natural gas for October delivery fell 74.6 cents, or 8.68 percent, to $7.862 per 1,000 cubic feet.
Atmospheric models showed Gustav heading toward Louisiana and areas devastated by Hurricane Katrina three years ago Friday, though it was too early to pinpoint where it would strike.
The storm not only threatens the more than 4,000 oil and gas rigs scattered throughout the Gulf, but also the dozens of oil refineries dotting the vulnerable coastline from Texas to Louisiana.
Oil’s retreat in the face of a possibly dangerous storm surprised some oil market watchers, who attributed the move to speculation that the government could release supplies from the Strategic Petroleum Reserve to counter any drop in production from Gustav.
The US has only twice tapped the emergency reserve in response to disruptions or fears of supply shortages, with the last release from the roughly 700 million barrel stockpile coming in the wake of Katrina.