Oil Falls as Companies Prepare to Resume Output After Hurricane

By Grant Smith
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Sept. 2 (Bloomberg) -- Crude oil fell to a five-month low below $106 as oil companies prepared to resume production from rigs closed by Hurricane Gustav.

Royal Dutch Shell Plc, Total SA and ConocoPhillips said they were inspecting offshore U.S. Gulf platforms today. Oil, down more than $40 from its July record, dropped as Gustav spared U.S. Gulf states the destruction caused by Hurricanes Katrina and Rita in 2005.

``The absence of serious structural damage from Gustav when the market was braced for the worst has caused prices to turn decisively downwards,'' said Christopher Bellew, a senior broker at Bache Commodities Ltd. in London. ``As technical selling takes hold, it looks likely we'll breach $100.''

Crude oil for October delivery fell as low as $105.46 a barrel, down 8.7 percent from the close of Aug. 29 on the New York Mercantile Exchange and the lowest since April 4. The contract traded at $106.97 at 9:47 a.m. London time.

Today's trading is combined with yesterday's for settlement purposes because of the Labor Day holiday in the U.S.

Shell, Europe's largest oil company, plans to redeploy a limited number of workers to its offshore platforms in the Gulf of Mexico, the company said in a statement.

Louisiana refineries shut down by Hurricane Gustav may take about 10 days to resume operations because of a lack of power, stunting fuel production at a time when regional gasoline inventories are at a 10-month low.

`Minor Damage'

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, including a flyover inspection of the refinery, would be made later today, spokesman Bill Tanner said by telephone.

Workers from more than 70 percent of the platforms and rigs in the Gulf were evacuated as Gustav approached, according to the U.S. Minerals Management Service. About 1.3 million barrels a day of oil and 7.06 billion cubic feet of gas was shut, all of the area's offshore oil output and 95 percent of gas production.

``It's a big surprise that Gustav wasn't as powerful as people thought,'' Jonathan Kornafel, a director at Hudson Energy Capital in Singapore, said in an interview with Bloomberg Television. ``We've seen this before with hurricanes, where the market comes off strongly once the storm makes landfall.''

Storm Downgrade

Prices jumped to $118 yesterday as Gustav crossed the Gulf of Mexico as a Category 4 hurricane, the second-highest ranking. The storm eased as it neared shore southwest of New Orleans. The system was subsequently downgraded to Category 2.

Gustav's winds slowed to about 45 miles per hour (120 kilometers per hour) at 1 a.m. local time, the National Hurricane Center said.

The center of Gustav, now downgraded to a tropical storm, was about 30 miles west of Alexandria, Louisiana, and may cross into northeastern Texas tomorrow.

As much as 20 percent of oil and gas production that was shut because of Hurricane Gustav may be restored by this weekend, Louisiana's Governor Bobby Jindal said yesterday at a press conference in Baton Rouge, Louisiana.

Brent crude oil for October settlement fell as much as $5.27, or 4.8 percent, to $104.14 a barrel on the ICE Futures Europe Exchange. It was at $104.95 at 9:30 a.m. London time. The contract had risen as high as $110.45 today.

To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net;