Oil prices are rising as Hurricane Isaac pushes into the heart of the US Gulf's oil and refinery operations.
Benchmark crude gained 41 cents to $95.88 per barrel in New York.
Forecasters had predicted Isaac would intensify into a hurricane by the time the storm reaches Louisiana later today.
Nearly 80% of oil production in the Gulf of Mexico had been halted as of yesterday afternoon. A number of refineries have shut down or curtailed production.
Although the storm isn't expected to damage refineries, refinery owners often shut down operations in advance of a storm.
With much of the region's oil production shut in, refineries closed or at reduced rates, and key import terminals shuttered, oil traders geared up for supply disruptions.
Some energy experts said Isaac could make it more likely for the U.S. government to release oil supplies from its 727 million barrel Strategic Petroleum Reserve in the coming weeks.
"I think the probability (of an SPR release) has gone up significantly," said Ed Morse, global head of commodity research at Citigroup in New York.
As of late Monday, around 2 million barrels per day of Gulf Coast refining was idle as the energy industry braced for Isaac's impact, Morse estimated. U.S. government figures also showed that at least 78% of U.S. Gulf of Mexico oil production was shut in and 45% of offshore gas output was idled.
Isaac could hit land as a Category 1 hurricane, a storm that packs winds of 119-153 km/h according to the Saffir scale, the NHC forecast. That would make Isaac much less powerful than Katrina, which swept ashore seven years ago as a Category 3 storm and took out 4.5 million barrels per day of refining capacity.
"The wave heights are much lower (than Katrina) so we expect less damage," said Tom Larsen, senior vice president of disaster modeller Eqecat Inc.
No significant energy infrastructure damage has been reported due to Isaac, but the storm's trajectory near much of the Gulf Coast's key energy infrastructure has already prompted significant supply disruptions.
Key refiners such as Exxon Mobil Corp, Valero Energy Corp and Phillips 66 began shutting plants along the U.S. Gulf Coast region on Monday, idling some 800,000 barrels per day (BPD) of plant capacity. Many other plants, such as Marathon's Garyville, Louisiana, plant, are running at reduced rates.
Dozens of major oil and gas-producing offshore platforms have been shut, and import terminals like the Louisiana Offshore Oil Port (LOOP) have temporarily halted tanker operations.
The Gulf of Mexico accounts for nearly a fourth of U.S. oil output and 7% of its natural gas output. The Gulf Coast region is the country's top refining hub, accounting for 45% of total capacity or 7.8 million barrels per day. Louisiana usually processes more than 3 million barrels per day.
US crude futures rose on Tuesday by 58 cents a barrel to $96.05, while gasoline futures fell by 1% after they had risen sharply on Monday.
For the week to Aug. 17, Gulf Coast gasoline inventories stood at 70.2 million barrels, or 1.1 million barrels above their five-year average level for the week.
Since Katrina in 2005, billions have been spent to fortify levees that protect New Orleans and nearby coastal areas from storm surges.
"It's not clear if Isaac will cause sustained damage to production or refining," said Bob McNally of Washington-based energy consulting firm Rapidan Group.
