Oil Down Sharply as Gustav Seen Weakening

By: AP
By: AP

Oil prices tumbled to $111 a barrel Monday as Hurricane Gustav weakened along the Gulf Coast and posed less of a threat to oil drilling and refining operations.

A stronger dollar also helped send oil lower after crude gained nearly $3 to trade above $118 a barrel in anticipation of Gustav's hitting Louisiana. Light, sweet crude for October delivery was down $4.34 at $111.12 in late afternoon electronic trading on the New York Mercantile Exchange. On Friday, the contract fell 13 cents to settle at $115.46 a barrel.

In London, October Brent crude was down $4.32 at $109.73 a barrel on the ICE Futures exchange. U.S. trading was closed Monday for Labor Day.

Meanwhile, the average U.S. retail gasoline price was down slightly to $3.686 a gallon, the auto club AAA, the Oil Price Information Service and Wright Express reported Monday. The price rose slightly more than a penny Saturday. Gasoline prices peaked on July 17 at $4.114 a gallon.

It was feared last week that pump prices would soar because of the hurricane; however after edging higher at week's end, they appeared to be steadying on Monday.

Before Gustav reached the Gulf Coast, investors were concerned about heavy damage that would disrupt oil operations. Some analysts, however, said the market's response to Gustav was not as strong as some predicted. U.S. energy risk management firm Cameron Hanover described reaction as "extremely subdued."

"The best reasons we can give for that are the strength of the U.S. dollar, the continuing decline in consumer demand and the market's recent trend lower," a Cameron Hanover report said. "The reaction is telling us that this market just does not have the stomach it once did for higher prices."

Current crude supplies in the United States were "ample due to higher imports from the North Sea," said analysts at JBC Energy in Vienna, Austria, another possible reason for the lack of a lasting rally in oil prices.

Still, there was some disruption due to Gustav, and by Monday afternoon, the extent of any damage was not known. Oil companies had shut down productions and evacuated facilities ahead of the storm. Exxon Mobil Corp., Royal Dutch Shell PLC and Valero Energy Corp., North America's largest refiner, were among the companies that said they had shut down Gulf Coast refineries, primarily in south Louisiana.

Altogether, about 2.4 million barrels of refining capacity had been halted, roughly 15 percent of the nation's total, according to figures from Platts, the energy information arm of McGraw-Hill Cos. The Gulf Coast is home to nearly half the nation's refining capacity.

Australia's BHP Billiton Ltd, which has an interest in eight projects in the Gulf, said Monday it had shut down production and evacuated personnel from its operations. Royal Dutch Shell PLC, BP PLC and Transocean Inc. have also evacuated employees from rigs in the Gulf region.

In 2005, Hurricanes Katrina and Rita destroyed 109 oil platforms and five drilling rigs.

Keeping prices from rising further are concerns that the credit crisis, which began in the U.S. last year, has spread to other developed countries and may undermine global demand for crude.

"Worries about an economic slowdown spreading to the euro zone and worries that oil demand growth in emerging markets may slow later this year are creating the current bearish sentiment in the oil market," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore.

The dollar was stronger against the euro and the British pound Monday, while losing some ground against the Japanese yen, taking away some of the incentive from investors who tend to buy into commodities like oil to defend against dollar weakness and as a hedge against inflation.

By afternoon in Europe, the euro was trading at $1.4615, down from $1.4671 late Friday in New York, while the British pound fell to $1.8011 from $1.8218 in the previous session.

The dollar stood at 108.12 Japanese yen, down from 108.81 yen on Friday.

In other Nymex trading, heating oil futures fell 10.93 cents to $3.0826 a gallon, while gasoline prices lost 10.92 cents to $2.7450 a gallon. Natural gas for October delivery fell 43.8 cents to $7.505 per 1,000 cubic feet.

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Associated Press writers Alex Kennedy in Singapore, Michael Kunzelman in Lafayette, Louisiana, and Mary Foster in New Orleans contributed to this report.


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