Oil Falls to Six-Month Low as U.S. Refineries Prepare to Resume

By Mark Shenk

Sept. 15 (Bloomberg) -- Crude oil fell to a six-month low in New York and gasoline tumbled as refineries along the Gulf of Mexico coast prepared to resume operations after escaping major damage from Hurricane Ike.

More than 20 percent of U.S. oil refining capacity was shut down, limiting fuel deliveries and prompting the Department of Energy to release 309,000 barrels from its strategic reserves. New York Mercantile Exchange electronic trading opened early yesterday to allow traders to respond to Ike.

``It looks like we've dodged another bullet,'' said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut. ``The refineries in the Houston area seem to have come out of the storm remarkably intact.''

Crude oil for October delivery fell as much as $2.72, or 2.7 percent, to $98.46 a barrel in after-hours electronic trading on the Nymex, the lowest since Feb. 26. The contract was at $99.68 at 7:44 a.m. in Singapore. Prices are up 24 percent from a year ago.

Gasoline for October delivery fell as much as 14.71 cents, or 5.3 percent, to $2.6225 a gallon in New York. The contract was at $2.675 at 6:45 a.m. in Singapore.

CME Group Inc., the world's biggest futures exchange, began electronic trading of energy contracts on the Nymex at 10 a.m. New York time yesterday.

Oil in New York has fallen 32 percent from a record $147.27 a barrel on July 11 as high prices and slowing global economic growth reduce demand for fuels.

Retail Sales

Sales at U.S. retailers dropped in August for a second straight month and July inventories at American businesses increased the most in four years, Commerce Department reports showed last week.

``Growing fears about the economy are trumping any fears about the damage caused by Hurricane Ike,'' said John Kilduff, senior vice president of risk management at MF Global Inc. in New York. ``The broader issue is the weakness of the financial system. Given the Lehman and WaMu watch, cash looks better than any speculative investment.''

Barclays Plc, the U.K.'s third-biggest bank, pulled out of talks to buy Lehman Brothers Holdings Inc. yesterday as the U.S. government raced to find a solution for the faltering investment bank. Washington Mutual Inc. plummeted in New York trading last week on speculation about its financial health.

A total of 14 Texas and Louisiana refineries, with combined crude processing capacity of 3.57 million barrels a day, are shut because of Ike.

`Little Damage'

``We think in probably a week to 10 days we should have a majority of the refineries back up,'' said James Cordier, founder of Tampa-based OptionSellers.com. from New York. ``Very little damage was done.''

Valero Energy Corp., the largest U.S. refiner, said it found ``no significant structural damage'' at three Houston-area refineries shut before the storm. One Valero refinery had power at most production units, the company said. Exxon Mobil Corp. said its Baytown refinery, the largest in the U.S., has power and damage appears ``limited,'' while it is checking its Beaumont, Texas, plant, which is without power.

ConocoPhillips said its Sweeny, Texas refinery has power and its condition is being assessed. LyondellBasell Industries' Houston refinery will be down for at ``least several days,'' said David Harpole, a company spokesman. Marathon Oil Corp. and Motiva Enterprises LLC said they were evaluating their plants.

Colonial Pipeline Co. said yesterday it restored operations to its gasoline and distillate pipelines, which run from the Gulf Coast to the Northeast.

`Major Disaster Area'

CenterPoint Energy Inc., Houston's electricity distributor, said yesterday about 81 percent of its customers remained without power a day after the hurricane struck Texas, and that it may take a month to fully restore supplies. President George W. Bush declared the state a major disaster area and city police imposed a nighttime curfew through this week, warning of downed power lines, broken traffic signals and water-filled roads.

``The crude oil price should be lower because with the refineries down, there is nowhere for it to go,'' Kilduff said. ``The drop in product prices may be short-lived because some of these refineries could be down for weeks.''

Heating oil dropped as much as 10.66 cents, or 3.6 percent, to $2.8325 a gallon in New York, the lowest since March 5. The contract was at $2.8538 a gallon at 6:15 a.m. in Singapore. Yesterday's trades of futures contracts are being recorded as part of today's session.

The storm idled about 99.6 percent of oil production and 91.9 percent of natural-gas output in the Gulf of Mexico, the U.S. Minerals Management Service said yesterday. Gulf fields produce 1.3 million barrels oil a day, about a quarter of U.S. output, and 7.4 billion cubic feet of gas, 14 percent of the total, government data showed.

Natural gas for October delivery rose as much as 14.3 cents, or 1. percent, to $7.509 per million British thermal units in New York. The contract was at $7.465 at 6:43 a.m. Singapore time.

The Energy Department said Sept. 13 it has released a total of 939,000 barrels of crude oil from its Strategic Petroleum Reserve because of shortages at refineries caused by Ike and Hurricane Gustav.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net