Oil ends higher; Atlantic storm raises supply concern

SAN FRANCISCO (MarketWatch) -- Crude-oil futures closed higher Monday after the formation of a new tropical storm in the Atlantic raised concerns over the potential for supply disruptions in the Gulf of Mexico.
Oil prices struggled during much of the trading session to hold above $115 a barrel as traders weighed concerns over slowing global oil demand against support arising from supply risks tied to tensions involving Russia and the neighboring state of Georgia. 
Crude for October delivery rose by 52 cents to close at $115.11 a barrel on the New York Mercantile Exchange. It was last at $115.18 in electronic trading on Globex. 
The contract rose as high as $116.06 earlier on Globex but also touched a low of $113.68. 
The National Hurricane Center said Monday that a tropical depression in the Caribbean has strengthened into Tropical Storm Gustav. 
There is a hurricane warning for the south coast of the Dominican Republic and a hurricane watch for Haiti, the NHC said in an update posted at 2 p.m. EDT. The center of Gustav will be moving near or over southwestern Haiti on Tuesday. It could strengthen into a hurricane prior to moving over land, the NHC said. 
"I imagine crude and natural-gas traders are closing positions out ahead of what could be a problem," said Beth Sewell, a managing partner at Quantum Gas & Power Services. 
Traders worry that storms in the Atlantic could eventually disrupt energy production in the Gulf of Mexico. The hurricane season is currently in its peak period. 
Natural-gas prices cut their losses Monday. Natural gas for September delivery fell 1.8 cents, or 0.2%, to close at $7.825 per million British thermal units on Nymex, after trading as low as $7.62 on Globex. 
It's the "fear factor," said Sewell. "Traders don't like open positions when there could be a supply disruption by a storm," she said, emphasizing the words "could be." 
Friday drop
On Friday, crude futures dropped more than 5%, pressured by a stronger dollar and signs of slowing demand. Oil still finished with a weekly gain of 0.6%. 
"The main reason behind Friday's move was the same as what took prices higher in the first place -- the dollar," wrote Edward Meir, analyst at MF Global, in a note. 
"Friday's about-face in the greenback spurred broad-based sell-offs in a number of other commodity complexes besides energy," he pointed out. 
The U.S. dollar traded mixed Monday after data showed that resales of U.S. single-family homes and condominiums rose in July but that inventories also increased, reaching record levels. See full story. 
The dollar index (DXY:















76.82, +0.01, +0.0%) was at 76.82, off from 76.813 in 
late North American trading on Friday. See Currencies. 
The oil market is "being driven by the dollar and central-bank policy, and issues like war and supply/demand take a back seat," said Phil Flynn, a vice president at Alaron Trading, in a note to clients. 
Oil prices also saw pressure after Friday's news that OPEC production was running well above official quotas set for the cartel's members, according to Meir. 
Petrologistics said the Organization of the Petroleum Exporting Countries will produce 32.95 million barrels a day in August, up 450,000 barrels from a revised 32.5 million barrels a day in July, according to a Reuters report. 
"We could see further weakness gnaw at the markets over the next few weeks, as weaker demand aggravates the excess supply problem," Meir told clients. He thinks it's unlikely that OPEC will take action to roll back any of the excess supplies. 
Also Monday, analysts at Action Economics singled out renewed tension between Washington and Moscow "after Russian lawmakers voted to recognize the independence of South Ossetia and Abkhazia, the two breakaway Georgian regions." 
The two houses of Russia's parliament voted in favor of a resolution calling on President Dmitry Medvedev to recognize the independence of South Ossetia and Abkhazia, the BBC reported Monday on its Web site. 
The unanimous votes in the Federation Council and State Duma are not binding on Russia's president, the BBC said. The votes came after Russia sent forces into Georgia in the countries' simmering dispute over South Ossetia. 

Elsewhere on the energy markets Monday, October reformulated gasoline tacked on 1.4 cents to close at $2.8823 a gallon while October heating oil finished at $3.1514 a gallon, up 2 cents. 
At the retail level, prices for a gallon of regular gasoline fell to $3.681 on Monday from $3.688 on Sunday, according to AAA's Daily Fuel Gauge Report. Prices stood at $3.983 a month ago. 
Taking a look at commodities as a whole, the Reuters/Jefferies CRB Index (CRB:















395.13, +0.33, +0.1%) , a benchmark gauging the prices of major 
commodities, edged up 0.1%. 
Gold futures closed lower after last week's rally. See Metals Stocks. 
Corn prices touched a more than one-month high. See Food Futures.  
Myra P. Saefong is MarketWatch's assistant markets editor, based in San Francisco.
Polya Lesova is a New York-based reporter for MarketWatch.