Crude oil prices rebounded Wednesday after dropping below $70 overnight as Hurricane Dean threatened to regain strength and possibly further affect oil installations in Mexico.
While the storm was downgraded to a Category 1 storm on Tuesday, it was closing in on the Mexican mainland Wednesday, battering evacuated oil platforms on the Bay of Campeche and threatening to regain some of the force it unleashed on the Yucatan Peninsula.
The sprawling, westward storm was projected to slam into the mainland Wednesday afternoon near Laguna Verde, Mexico's only nuclear power plant, which is suspending production.
"We often see that when a storm weakens, people let down their guard completely. You shouldn't do that," said Jamie Rhome at the U.S. National Hurricane Center. "This storm probably won't become a Category 5 again, but it will still be powerful."
Light, sweet crude for October delivery rose 25 cents to $69.82 a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe. The contract had fallen $1.39 to $69.57 a barrel on Tuesday.
The September contract fell $1.65 Tuesday to close and expire at $69.47 a barrel - the lowest close for a front-month contract since June 27. Gasoline and natural gas prices also extended their losses Tuesday as traders bet that demand was falling and supplies were safe.
But gasoline prices rose 1.38 cents Wednesday to $1.8775 a gallon on the Nymex, while natural gas gained 2.7 cents to $5.844 per 1,000 cubic feet. Heating oil futures rose 0.64 cent to $1.9584 a gallon (3.8 liters).
October Brent crude rose 13 cents to $68.82 a barrel on the ICE Futures exchange in London.
With Dean's wind speeds down significantly, though, analysts said the storm is unlikely to cause any long-term disruptions.
There had been concern earlier that Dean - then a Category 5, the highest rating for a hurricane - could severely damage oil infrastructure in the main production area of Mexico's state oil company, Petroleos de Mexico, or Pemex.
Pemex evacuated more than 18,000 workers and shut down production in the area ahead of the hurricane. That will mean a production loss of 2.7 million barrels of oil and 2.6 billion cubic feet of natural gas a day, the company said. Of that, about 1.7 million barrels of oil a day is exported from three Gulf ports, where Pemex loaded final tankers on Monday.
Mexico was the third-largest oil supplier to the United States in June, after Canada and Saudi Arabia, providing some 1.39 million barrels a day out of total U.S. imports of 9.92 million barrels a day, Vienna's PVM Oil Associates said, citing data from the U.S. Energy Department's Energy Information Administration.
The U.S. government announced it was willing to loan crude from its Strategic Petroleum Reserve to make up for lost imports from Mexico, PVM added.
Traders are now awaiting a weekly U.S. inventory report due later Wednesday from the Energy Information Agency of the U.S. Department of Energy.
The report is expected to show that crude oil stocks fell 2.8 million barrels last week, according to the average forecast of analysts surveyed by Dow Jones Newswires. Gasoline stocks are predicted to have fallen 600,000 barrels, and distillates, which include heating oil and diesel fuel, are forecast to have risen by 800,000 barrels. Refinery use is expected to have risen 0.2 percentage points for the week ended Aug. 17.
Choppy trading on world stock markets recently has many investors betting energy demand will keep declining, especially since the North American driving season is coming to an end. Still, some analysts say a large fall in crude stocks and lower-than-expected refinery activity could lift prices.