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Oil leaps over $90 on US ice storm, Fed meeting

NEW YORK - Oil surged more than 2.6 percent to over $90 a barrel Tuesday as a Midwest ice storm paralyzed parts of the most important crude storage hub in the United States and the US Federal Reserve appeared poised to cut interest rates.

US oil CLc1 rose $2.29 to $90.15 per barrel by 1830 GMT while London Brent crude LCOc1 traded up $1.90 to $89.94 a barrel. Because of its lagging gains, Brent lost a premium to US oil that it had held for nearly a week.

“The US Federal Reserve is expected to announce a third interest rate cut later today, supporting oil prices this morning by bolstering the US economic outlook and reinforcing oil demand forecasts,” said Omar Nokta, analyst at Dahlman Rose & Co LLC, in a research note.

The gains were compounded by a deadly ice storm which brought operations at the Cushing, Oklahoma, delivery point to a near standstill and threatened supplies to the region’s refineries.

The storm knocked out power to more than 800,000 in the US Central plains and forced Enbridge EEP.N and TEPPCO to shut more than 20 million barrels of oil terminal storage. Several pipelines, including the 350,000 barrel per day Seaway pipeline from the Gulf Coast, reduced or halted throughput.

Adding support, fog along the Texas coast delayed more than 60 vessels from entering the nation’s biggest petrochemical ports. Officials said some traffic resumed early Tuesday, but that the fog could return later in the day.

“I think the market is way up not so much on supply and demand issues but rather getting supplies from point A to point B. We have had fog in the Gulf, pipeline (snags), ice storms,” said Phil Flynn, analyst at Alaron Trading in Chicago.

The outages helped end a slump that has dragged oil prices off a record high above $99 a barrel in November amid concerns that a slowdown in the US economy could dampen demand in the world’s top consumer.

The US Energy Information Administration on Tuesday slashed its world oil demand growth for the first quarter of 2008 by 260,000 barrels per day, with total demand estimated at 87.44 million bpd. But it said it still expected the world energy market to be tight in 2008, with OECD days of forward crude oil demand cover falling to the lowest in more than three years by February.

US crude oil inventories, running at their lowest since March 2005, are expected to have slipped another 200,000 barrels during the week to Dec. 7,, according to a Reuters poll ahead of data due Wednesday.