Oil heads towards $100 as Gustav fades

Tue Sep 2, 2008 5:37am EDT

By Jane Merriman

LONDON (Reuters) - Oil slid towards $100 a barrel on Tuesday, after early reports showed Hurricane Gustav had spared major U.S. Gulf oil facilities.

U.S. crude fell to $107.17 a barrel by 5:07 a.m. EDT, down $8.29 from Friday's close. It touched a session low of $105.46, its lowest since April 2.

A U.S. public holiday on Monday meant the New York Mercantile Exchange did not issue an official settlement price.

London Brent crude was down $3.46 at $105.95.

As the hurricane was downgraded to a tropical storm, the market returned its focus to a string of bearish factors, including a softer global economy, weaker demand for oil and a stronger U.S. dollar.

These had already begun to drive prices down from a peak of $147.27 a barrel hit on July 11.

Hurricane Gustav, combined with Russia's conflict with Georgia, which disrupted flows of oil and gas, had halted the slide.

"If it were not for these threats, we would have been testing $100 already," said Mike Wittner, of Societe Generale.

An upturn in the dollar, plus falls in oil demand in the United States and China, the world's top two energy consumers, look set to exert further pressure on the market.

The weak dollar contributed to oil's surge this year as investors turned to oil as a hedge. The U.S. currency has shown signs of bottoming out and hit a 10-month peak against a basket of currencies on Tuesday.

"Economic woes and the dollar strength will help oil move down. It's highly likely to go below $100," said Christopher Bellew of Bache Commodities Limited.

LIMITED DAMAGE

Early checks by some U.S. refiners reported no damage from Gustav, which had originally been classed as the biggest threat to the U.S. Gulf oil sector since devastation from Hurricane Katrina in 2005.

Some 1.3 million barrels per day of offshore oil production and some 2.67 million bpd of refining capacity was shut because of the storm.

The Gulf is home to a quarter of U.S. oil output and more than a third of U.S. refining capacity.

Louisiana Governor Bobby Jindal said on Monday that Exxon Mobil Corp would ask for crude oil from the U.S. emergency supply on Tuesday and Shell Oil Co was expected to make a similar request.

(Reporting by Jane Merriman and Barbara Lewis in London and Chua Baizhen in Singapore)