NEW YORK (AP) - Oil prices plunged to the lowest level in five
months Tuesday, falling to within sight of $100 a barrel on signs
that Hurricane Gustav only grazed U.S. energy infrastructure in the
Gulf of Mexico.
Light, sweet crude for October delivery fell $5.75 to settle at
$109.71 a barrel on the New York Mercantile Exchange, after earlier
dropping as low as $105.46. It was the lowest trading level since
April 4, just before oil began an unprecedented march above $147
Virtually all oil and natural gas production remained shut down
in the Gulf of Mexico as energy companies began assessing damage to
offshore platforms, rigs and pipelines, according to the U.S.
Minerals Management Service. It was too soon to say when output
might resume, though some oil companies were preparing to redeploy
evacuated personnel as early as Wednesday.
Without serious damage, oil and natural gas facilities could
start up again in a day or two, while coastal refineries could take
two to four days to resume production, depending up their size. In
2005, Hurricanes Katrina and Rita knocked out the region's offshore
energy infrastructure for several weeks.
"Unlike three years ago, it looks like they're going to get in
there fairly quickly and get things ramped up again," said Jim
Ritterbusch, president of energy consultancy Ritterbusch and
Associates in Galena, Ill. "You don't have these platforms bobbing
in the Gulf of Mexico like fishing corks. They're pretty much
On Friday, crude prices settled at $115.46 a barrel as Gustav
approached the Gulf Coast region, home to a quarter of US. crude
production and 40 percent of refining capacity. But traders grew
less jittery when Gustav weakened as it neared the offshore oil
rigs and Louisiana refineries.
After the storm was downgraded to a tropical depression early
Tuesday, oil market traders quickly turned their attention to
slowing global economic growth, speculating that demand for crude
will be dampened even in rapidly expanding China and India.
"The magnitude of this pullback suggests the market is fully
focused on demand destruction," Ritterbusch said. "The
speculators, hedge funds and other investors are getting out of
this market on a major scale."
Also weighing on oil Tuesday was a stronger dollar versus the
euro. A rising greenback encourages selling from investors who
bought oil as a hedge against inflation.
However, crude prices could recover if the dollar weakens again
or if oil-producing countries cut back on output to keep prices
high, as some analyst have speculated.
The Organization of the 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, 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.
Royal Dutch Shell PLC, BP PLC and other major oil companies were
conducting flyovers of platforms and rigs Tuesday, searching for
major signs of damage or oil spills. More than 80 percent of energy
production platforms and rigs in the Gulf were evacuated before the
"We're optimistic things are in good shape, but we won't know
the details until we conduct a full assessment," said BP spokesman
Daren Beaudo. "If prudent, we'll start ferrying folks out there on
Traders are also keeping an eye on other storms in the region.
Tropical Storm Hanna was predicted to come ashore in Georgia and
South Carolina late in the week and could regain hurricane strength
later in the day. 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.
Meanwhile, Tropical Storm Josephine formed Tuesday in the
eastern Atlantic, and the National Hurricane Center said it could
near hurricane force by Wednesday or Thursday as it moves west.
"The storms are likely to provide some upside risks to the oil
futures market," said Victor Shum, an energy analyst with
consultancy Purvin & Gertz in Singapore.
Associated Press writers Pablo Gorondi in Budapest, Hungary,
Eileen Ng in Kuala Lumpur and Alex Kennedy in Singapore contributed
to this report.
(Copyright 2008 by The Associated Press. All Rights Reserved.)