Crude Oil Falls on Minimal U.S. Storm Damage, Stronger Dollar

By Nesa Subrahmaniyan

Sept. 3 (Bloomberg) -- Crude oil fell for a fourth day as Hurricane Gustav caused minimal damage to refineries and rigs in the Gulf of Mexico and a strengthening dollar curbed the appeal of commodities as an inflation hedge.

An aerial survey of platforms and rigs in the Gulf of Mexico found no structural damage and no oil spills, the U.S. Coast Guard said. Oil fell to a five-month low yesterday after the dollar rose to near a seven-month high against the euro on speculation the U.S. economy will outperform Europe and Asia.

``Gustav was more hype than action and there was very little damage so investors rushed for the exit,'' said Tetsu Emori, a fund manager at Astmax Co. in Tokyo. ``The dollar's gain is also prompting funds to lower their exposure to commodities, and another concern is demand as U.S. refiners are due to shut for maintenance soon.''

Crude oil for October delivery fell as much as $1.20, or 1.1 percent, to $108.51 a barrel, and traded at $108.94 at 3:10 p.m. Singapore time on the New York Mercantile Exchange. Prices are up 48 percent from a year ago. Yesterday, futures lost $5.75, or 5 percent, to settle at $109.71 a barrel, the lowest close since April 8.

Gustav made landfall in Louisiana Sept. 1 as a Category 2 hurricane, with winds close to 110 miles (177 kilometers) an hour. It has since been downgraded to a tropical storm as it heads toward northeastern Texas.

All of the Gulf's 1.3 million barrels a day of oil output and 95 percent of its gas production, or 7.06 billion cubic feet, remained shut, the U.S. government said yesterday.

Shell, Total

Royal Dutch Shell Plc, Total SA, ConocoPhillips and Valero Energy Corp. are among oil and gas producers, and refiners that have started initial inspections of facilities.

Oil, down more than $37 from its July record, dropped because Gustav inflicted less damage to states along the Gulf than occurred in 2005 when Hurricanes Katrina and Rita struck.

ConocoPhillips, the second-largest U.S. refiner, said its 247,000-barrel-a-day Alliance refinery in southern Louisiana sustained ``minor damage'' and a complete assessment of the refinery was scheduled to be made Sept. 1, according to spokesman Bill Tanner.

New York gasoline for October delivery was at $2.7177 a gallon, down 1.60 cents, at 3:04 p.m. Singapore time.

Oil's 26 percent slide from its July 11 record of $147.27 a barrel is a ``symptom'' of an economic slowdown in the U.S. and Europe and may continue over the next six months, investor Marc Faber said yesterday in a Bloomberg Television interview.

Moving Average

New York crude oil yesterday breached the 200-day average as slowing economic growth and unprecedented fuel costs slash U.S. demand for oil products.

The dollar traded at $1.4431 per euro at 1:51 p.m. Singapore time from $1.4617 on Sept. 1. It touched $1.4467, the strongest level since Feb. 8.

Brent crude oil for October settlement fell as much as $1.09, or 1 percent, to $107.25 a barrel and traded at $107.62 at 3:10 p.m. Singapore time. Yesterday, the contract declined $1.07, or 1 percent, to $108.34 a barrel on London's ICE Futures Europe exchange, the lowest close since April 10.

The 13 members of the Organization of Petroleum Exporting Countries, which pump about 40 percent of the world's output, will meet on Sept. 9 in Vienna to review production targets.

Oil prices are unlikely to drop below $100 a barrel because OPEC will cut production to support the price, billionaire hedge-fund manager Boone Pickens told CNBC yesterday.

``OPEC likes it up here,'' Pickens said in a televised interview from the New York Mercantile Exchange. ``I think they'll support it and cut production.''

Pickens, 80, is the founder and chairman of Dallas-based BP Capital LLC. He manages funds linked to both energy commodities and equities.

Analysts Differ

Analysts were split over whether U.S. crude-oil inventories rose or fell last week, a Bloomberg News survey showed.

U.S. refineries often shut units for maintenance, or turnaround, in September and October as gasoline demand falls and heating-oil use has yet to rise.

Supplies of crude oil probably rose 450,000 barrels last week from 305.8 million barrels, according to the median of responses by 10 analysts before an Energy Department report this week. Six expected an increase and four expected a drop.

Refineries probably operated at 87.5 percent of capacity in the week ended Aug. 29, up 0.2 percentage point from the week before, the survey showed. Plants ran at 92.1 percent of capacity during the same week last year.

To contact the reporter on this story: Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net.