Singapore (Platts)--5Jun2007

Oman remained on high alert Tuesday as the first-ever super cyclone
recorded in the Indian Ocean heads for its shores, forcing the Sultanate to
declare a state of emergency. The cylcone has been equated to a Category 5
hurricane based on the US system of measuring storm strength.
     Although Super Cyclone Gonu has been slightly downgraded Tuesday, the
storm is still a major threat to the oil and shipping industry but given the
unprecedented strength of the storm for this region, its impact can only be
guessed at say sources.
     Of concern for the oil markets, Oman lies at the mouth of the Strait of
Hormuz, the narrow channel that sees some 17 million b/d of crude shipped from
of the Arabian Gulf. Major tidal surges in the channel will almost certainly
cause some disruption to shipping, said sources, but how much disruption
depends on the final course of the Cyclone.

     LOADING TERMINAL, REFINERIES LIE IN GONU'S PATH
     But the Sultanate also produces around 730,000 million b/d of onshore
crude and its export terminal, Minal Al Fahal, lies in the current projected
path of Gonu. 
     A source familiar with the MAF infrastructure said that vessels are
loaded via two single buoy moorings, rather than a jetty that stretches out to
sea. In theory, this may be less exposed than a jetty but as the twin US
storms of Katrina and Rita demonstrated, storm surges can tear up undersea
pipelines. 
     "The bulls are talking this up, saying the storm surges will cause major
damage to MAF and shipping traffic.... whereas the bears are saying that the
shallower waters near the coast and dry desert air will break up the storm,"
said one trading source, commenting on the reaction so far from the oil
markets.
     Oman's PDO, which operates MAH, said Tuesday that oil operations are
normal but it is monitoring cyclone activity. (See story at 04:39 GMT)
     Oman also has two refineries potentially lying in the path of Gonu,
including the Sohar plant, which only started operations late last year and is
still not up to full capacity. 
     While Oman is a generally a mountainous country, most of the
infrastructure is on the low-lying coastal areas which will bear the brunt of
any storm. This could provide a massive test for Oman's infrastructure,
particularly if power lines and desalination plants take a battering. Oman has
very little rain in general, so coping with flash floods will be a major test.
     Its two refineries could also be exposed to flash floods, and sources
said that flooding at the Sohar refinery has previously caused problems with
the plant's start up. Flooding was a major problem for a number of refineries
in the wake of Hurricane Katrina in 2005.

     THREAT TO ARABIAN GULF SEEN UNLIKELY
     If the Super Cyclone does make it beyond Oman and into the Strait of
Hormuz, it would take an extreme set of circumstances for it to enter the
Arabian Gulf. The storm would either have to take a sharp turn to the south,
breaking from its current north westerly route, or cross mountains and deserts
without breaking up. 
     While the Arabian Gulf generally has few offshore fields - the UAE's
Upper and Lower Zakum fields are among the exceptions - it would still provide
a major problem for shipping in the region and storm surges could threaten the
coastal export terminals. The storm could also move over Iran to the north,
threatening parts of its oil and gas infrastructure.   
     Crude oil prices rallied by more than $1.00/b Monday on storm concerns,
and Brent futures were largely holding on to the gains Tuesday with the
front-month July ICE contract holding comfortably above $70.00/b.  
     The Regional Specialized Meteorological Centre in New Delhi has
downgraded the "super cyclonic storm" Gonu, to a "very severe cyclonic storm"
with a Dvorak rating of T6 as at 0000 GMT Tuesday. (See story at 03:59 GMT)
     This is typical behavior for such a storm, according to weather watchers,
as a weather systems cannot hold category 5 strength for any sustained period
of time. Storms, however, can regain strength, depending on its course and the
temperature of the water over which it travels.   
     But because there is so little recorded data on such severe weather
systems in the region, forecasting the eventual path and strength is pure
speculation. 
     "We can't really assess the impact until Wednesday and Thursday. Until
then, all you can do is sit back and watch," said one Singapore-based trader.