Crude oil fell, reversing earlier gains, after Hurricane Gustav weakened, easing concern of widespread damage to drilling rigs and refineries.
Gustav has been downgraded to a Category 2 storm, the second-weakest of the five levels of hurricane strength, the National Hurricane Center in Miami said in its latest advisory. Preparations for the storm closed 96 percent of offshore oil production and about 10 percent of U.S. refining capacity.
“The latest forecast shows that while Gustav is perfectly aimed at the heart of US oil and gas production it’s not quite as strong as was initially feared,’’ said Mike Wittner, Societe Generale’s London-based head of oil research. “The refining system is not as stretched this time round compared with Rita and Katrina.’’
Crude oil for October delivery fell as much as $5.01 to $110.45 a barrel in electronic trading on the New York Mercantile Exchange, and traded at $113.19 at 2:32 p.m London time. It earlier rose as much as 2.2 per cent to $118.
Gulf Coast refineries have cut at least 1.56 million barrels a day of output, about 9.8 per cent of the US total. Gustav, packing winds of 115 miles an hour (240 kmph) was 85 miles south of New Orleans at 6 a.m Miami time, according to the National Hurricane Center.
Still, Gustav is two categories below the peak strength reached by Hurricane Katrina, which sent oil prices to records after wrecking refineries around New Orleans three years ago. Katrina’s intensity was greatest over the gulf, where it damaged rigs, platforms and undersea oil and gas pipelines. It then weakened to a Category 3 hurricane before reaching land.
Workers from more than 70 per cent of the platforms and rigs in the gulf have been evacuated as Gustav approaches, the US Minerals Management Service said in a statement on its website yesterday. About 1.25 million barrels a day of oil and 6.09 billion cubic feet of gas have been shut, or more than 96 per cent of offshore oil output and 82 per cent of gas production.
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The Gulf of Mexico normally produces about 1.3 million barrels of oil and an estimated 7.4 billion cubic feet of gas a day, according to the Minerals Management Service, part of the US Interior Department.
Brent crude oil for October settlement was down $2.46, or 2.2 per cent at $111.59 barrel on the ICE Futures Europe Exchange.