NEW YORK - Oil prices slipped Monday as Hurricane Ike weakened over Cuba and the U.S. dollar strengthened.
Ike, after scouring the Bahamas and Haiti, made landfall on Cuba as a Category 3 storm, but then lost speed and became a Category 2. It is expected to enter the Gulf later this week.
"The main driver today and through the rest of this week will be Hurricane Ike. The market is going to zig and zag in response to each development," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates.
The dollar was also affecting energy trading, rebounding against other major currencies and encouraging investors who bought commodities to hedge against a weaker U.S. currency to sell them.
"When the dollar moves north or south, it has a dramatic effect on commodities across the board," said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group and OptionSellers.com.
Another event weighing on traders' minds is OPEC oil ministers' upcoming meeting in Vienna, Austria, to decide whether to trim production in a bid to stall oil's recent slide. Iranian oil minister Gholam Hossein Nozari said he thinks there is too much crude on the market, but some analysts say they believe Saudi Arabia will try to thwart calls to cut production.
Minister of Energy Mohammed Bin Dhaen al-Hamli, who will lead the United Arab Emirates delegation, said that inventory levels indicate that "the market is well supplied," and that "the recent decline in prices simply shows that the oil price had risen too high and too fast."
Light, sweet crude for October delivery fell 33 cents to $105.90 by late morning on the New York Mercantile Exchange, after rising as high as $109.89 a barrel.
Crude has plunged about $40, or 27 percent, since surging to a record $147.27 a barrel on July 11.
In other Nymex trading, heating oil futures rose 3 cents to $2.9916 a gallon, while gasoline futures jumped 7.22 cents to $2.7583 a gallon.
Natural gas for October delivery gained 19.8 cents to $7.647 per 1,000 cubic feet.
Nearly 80 percent of U.S. oil production and 70 percent of natural gas production in the Gulf remained halted Sunday following evacuations in preparation for Hurricane Gustav, according to the U.S. Minerals Management Service.
Ike's advance left rig operators questioning whether to resume work. Royal Dutch Shell said it would keep staffing at its offshore Gulf installations, which it reduced ahead of Gustav last week, to a minimum as it monitors Ike.
"Companies are caught between restarting production after Gustav and making preparations for Ike," said David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney. "These storms are very unpredictable, but Ike's likely movement puts it into the Gulf area."
In 2005, Hurricanes Katrina and Rita ravaged the Gulf of Mexico, inflicting damage on oil and natural gas facilities in the region that took several months to repair.
In London, October Brent crude fell 23 cents to $103.86 a barrel on the ICE Futures exchange.