Crude Jumps on Storm Warning

The August contract moves back toward $60 a barrel.
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Updated from 2:35 p.m. EDT

Crude prices rose Tuesday as warnings about a new tropical storm in the Gulf of Mexico encouraged bulls.

The August contract closed up 84 cents at $59.59 a barrel on Nymex, leaving it less than a dollar below its record closing price of $60.54, reached last Monday. Gasoline futures also soared 4 cents to $1.68 a gallon. Heating oil added 2 cents, to $1.73 a gallon, hitting an all-time record high of $1.76 earlier in the session.

Oil was supported by the advent of Tropical Storm Cindy, raising concerns about supply disruptions in the Gulf of Mexico. The National Hurricane Center says Cindy, the third named storm of the season, could reach the coast of Louisiana Wednesday morning.

"It's all about Cindy today," says Bill O'Grady, assistant director of market analysis at A.G. Edwards. "The storm's track looks like it's going through the energy-sensitive area between Mississippi and Houston. As a general rule, when this happens, you get nervous."

But Cindy isn't expected to hit No. 3 status, which is usually when a hurricane becomes harmful to the energy industry, O'Grady says.

The Louisiana Offshore Oil Port, which processes 1 million barrels a day of imported crude, has already shut down because of the rough seas and is expected to reopen in 36 hours, according to O'Grady. "But there is no real concern there because there is still more than 300 million barrels in inventories," he says.

Some companies,

Transocean

(RIG) - Get Report

among them, have also begun evacuating "non-essential" crews from their offshore rigs, a

Bloomberg

report said.

Behind Cindy is Tropical Storm Dennis, said to have a greater potential to become a hurricane, which is forecast to hit Florida rather than the Gulf Coast.

On Friday, crude prices shot up more than $2 as traders covered short positions ahead of a holiday weekend in the U.S., paring losses of a weeklong profit-taking that hammered prices down by 6% during that week.

The U.S. Energy Department will issue its weekly inventory report a day later than usual, on Thursday, because of the Fourth of July holiday. The previous report showed crude stock grew more than expected and remains at a six-year high, while distillates stocks, which also increased, remain below their average levels.

Analysts are concerned that not only will a fourth-quarter upsurge in distillate demand, specifically heating oil, strain refineries, but that crude demand will exceed 86 million barrels a day for the first time in history.

In company news, shares of

BP

(BP) - Get Report

jumped by 3.7% after the company said its second-quarter production will be flat compared with the first quarter, at 3.135 million barrels of oil equivalent a day, while its global indicator margins rose to $8.42 a barrel from $8.28 a barrel. BP's net share of production from its Russian subsidiary TNK-BP is anticipated to be approximately 975,000 barrels a day, while its average production for 2005 is expected to be in the range of 4.1 million to 4.2 million barrels of oil equivalent.

Oil and gas producer

XTO Energy

(XTO)

continues to acquire assets. The company said Tuesday it has purchased properties in the Permian Basin of West Texas and New Mexico from

Exxon Mobil

(XOM) - Get Report

for $215 million.

XTO Energy estimates the long-lived properties will yield about 21.1 million barrels of oil equivalent, and initially add about 3,800 barrels of oil equivalent per day, of which 83% is oil.

The company also said it bought two additional oil fields in Texas, which produce about 1,000 barrels of oil equivalent per day, from

Mission Resources

(MSSN)

, which recently agreed to be acquired by

Petrohawk Energy

(HAWK)

, for $56.5 million in cash. Shares of XTO Energy climbed $1.21, or 3.4%, to $36.44.

Apache

(APA) - Get Report

said it discovered oil and gas at the Tanzanite-2 well in Egypt, which produced 2,846 barrels of oil and 640 thousand cubic feet of gas per day in the first test. The company has a 65% working interest in the project. Shares rose $2.24, or 3.35%, to $69.14.

Todco

(THE)

shares surged more than 7% after its rating was reportedly raised to outperform from neutral by Credit Swiss First Boston on Friday. The shallow water, oil and gas drilling company recently released its fleet status report, which indicated dayrates increases in its Gulf of Mexico jackup fleet. Following the report, Raymond James increased its 2005 earnings estimate for Todco to 96 cents a share, from 90 cents a share, and upped its 2006 estimate to $2.06, from $1.92. The firm also raised Todco's price target to $49. Shares increased $1.98, or 7.4%, to $28.73.

Shares of the major oil producers rallied Tuesday, propped by rising oil prices. The Amex Oil Index was recently up 1.7%. Exxon Mobil climbed 2.8%,

Chevron

(CVX) - Get Report

added 1.3%,

ConocoPhillips

(COP) - Get Report

jumped 3% and

Royal Dutch/Shell

(RD)

rose 1.3%.

The Philadelphia Oil Service Index rose 2.4%. Jim Wicklund, oil service analyst at Banc of America, said in a note that the Oil Service Index continued its relative outperformance in the second quarter, increasing 3.7%.

"Historically, strong sector funds flow (greater than $100 million) has either foreshadowed or occurred concurrently with near-term weakness in the OSX ... However, the funds flow witnessed in late March represented a nearly 400% increase to historical 4-week moving averages and the subsequent follow through illustrates that momentum is clearly with the stocks," Wicklund wrote.