Oil prices tumbled below $108 a barrel Tuesday — down nearly $8 from Friday's close before the U.S. Labor Day weekend — as investors shifted their focus to slowing global demand after worries about Hurricane Gustav subsided.
By midday in Europe, light, sweet crude for October delivery was down $7.85 a barrel to $107.61 in electronic trading on the New York Mercantile Exchange. Earlier in the session it had dropped as low as $105.46.
On Friday, the contract settled at $115.46 a barrel as Gustav approached the U.S. Gulf coast, a key region for oil drilling and refining. But traders were relieved that Gustav weakened as it neared the offshore oil rigs and Louisiana refineries, and appeared to have caused less damage than expected in New Orleans and surrounding areas.
Traders quickly turned their attention to slowing global economic growth, speculating that will dampen demand for crude oil, even in developing countries such as China and India.
"The market continues to be weighed down by worries of a global economic downturn and slowing oil demand in developing markets," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore. "Action by OPEC and supply side concerns should put a backstop to any sharp price drop."
The Organization of Petroleum Exporting Countries is scheduled to meet Sept. 9 in Vienna and has indicated it may take action to defend the $100 a barrel level.
Ahead of Gustav, there was some disruption to oil supplies as oil companies shut down production and evacuated facilities. Altogether, about 2.4 million barrels of refining capacity was halted, roughly 15 percent of the U.S. total, according to figures from Platts, the energy information arm of McGraw-Hill Cos. The Gulf Coast is home to nearly half of the nation's refining capacity.
It could be a day or more before oil and natural gas companies can assess the damage to their drilling and refining installations. Louisiana Gov. Bobby Jindal said as much as 20 percent of oil and gas production that was stopped because of Gustav could be restored by this weekend, stressing that it was a rough estimate.
Traders are also keeping an eye on other storms brewing in the region.
Hurricane Hanna was predicted to come ashore in Georgia and South Carolina late in the week, and Tropical Storm Ike formed late Monday in the Atlantic Ocean and may become a hurricane in the next 36 hours as it approaches the Bahamas.
"September is the peak of the Atlantic hurricane season. After Gustav, there are two more now on the radar screen. The storms are likely to provide some upside risks to the oil futures market," Shum said.
In other Nymex trading, heating oil futures fell 20.8 cents to $3.9839 a gallon, while gasoline prices lost 21.63 cents to $2.6379 a gallon. Natural gas for October delivery fell 68.7 cents to $7.256 per 1,000 cubic feet.
In London, October Brent crude was down $2.38 to $107.03 a barrel on the ICE Futures exchange.