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Oil Prices Rally Despite Storm's Limited Impact to Oil-Rich Region

Oil producers in the Persian Gulf are breathing a sigh of relief as Cyclone "Gonu" weakened to a tropical storm. Shipping and port officials say the storm caused very little damage to major oil fields in the region. Despite the limited impact from the rare storm, continuing concerns about energy supplies caused oil prices to hit their highest levels since mid-May. VOA's Mil Arcega reports.

The strongest storm to hit the Arabian Peninsula in 60 years unleashed powerful winds and sheets of rain as it battered Oman's coast. Packing winds up to of up to 145 kilometers an hour, cyclone "Gonu" caused widespread flooding and damage to low-lying areas. It also forced the evacuation of thousands of people and the closure of major oil installations along the Strait of Hormuz. Nearly one-fifth of the world's oil passes through the narrow waterway that leads to the Persian Gulf.

"If the cyclone gets in there, you are going to see prices continue to rally,” explained New York energy trader Chris Motroni. “You know, you have to see what happens where exactly it hits. If it comes into a region where all those refineries and all those oilfields are, you are going to see what happens, what damage it does. Then you are going to have to see where the prices go."

Despite the fear of major shipping disruptions, the storm weakened as it headed for landfall in southeastern Iran. Although the storm caused very little damage to the country's oil installations, crude prices climbed 35 cents Thursday to $67.40 per barrel. The price hike came just as port officials were making assurances that oil shipments would resume quickly. Motroni says that is because continuing high demand for oil was an overriding factor -- even before the storm. Another concern is a recent federal government report showing a decline in the output from U.S. refineries.

"People have been talking higher gas prices for almost six, seven months now. I mean, me, personally, I have been saying you are going to see $4 a gallon at the pump. So, this is something that is a little bit of a surprise, a little bit of a curve ball but people have already expected higher gas prices, higher crude prices. So, there is not that much impact here," says Motroni.

About 21 million barrels of oil are shipped through the Persian Gulf everyday. Traders say even if the storm delays just a few tankers, it could still reduce worldwide oil supplies which could lead to higher gasoline prices.