Oil Trades Near 4-Month Low on Reduced Concern of Storm Damage

By Margot Habiby and Gavin Evans
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Sept. 2 (Bloomberg) -- Crude oil traded near a four-month low after Hurricane Gustav weakened before striking the Louisiana coast, easing concern of major damage to rigs and refineries.

Damage from the hurricane, which halted all the region's offshore oil output and 10 percent of U.S. refining capacity, may be about a quarter of the record $41.1 billion Hurricane Katrina caused in 2005, Risk Management Solutions Inc. estimated. Gustav was downgraded to a Category 2 hurricane before crossing the coast southwest of New Orleans yesterday.

``Where the hurricane came ashore basically misses everything,'' said Michael Rose, trading director at Angus Jackson Inc. in Fort Lauderdale, Florida. ``There are a couple of rigs out there, but not many. The market is just basically resuming its trend, which was lower.''

Crude oil for October delivery was at $111.40 a barrel, down 3.5 percent from last week's close, on the New York Mercantile Exchange at 9:29 a.m. in Sydney. Yesterday's trading is combined with today's for settlement purposes because of the Labor Day holiday in the U.S.

Natural gas for October delivery was at $7.525 per million British thermal units, down 5.3 percent, while October gasoline was at $2.7584 a gallon, down 3.4 percent.

Oil prices have fallen 24 percent from the record $147.27 a barrel reached on July 11. Prices jumped to $118.60 yesterday as Gustav crossed the Gulf of Mexico as a Category 4 hurricane, the second-highest ranking. The storm eased as it neared shore.

Downward Trend

``What we are seeing is just a continuing downward trend in the oil price,'' Simon Wardell, energy research manager at Global Insight Inc. in London, said yesterday. ``With demand weakening and supply increasing, save obviously for the disruption we're getting now, the trend is very much going to be continuing the move downwards.''

Brent crude oil for October settlement fell $4.64, or 4.1 percent, to settle at $109.41 barrel on the ICE Futures Europe Exchange yesterday.

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.

Twelve of the region's 33 refineries have shut and a further 10 reduced their operations, said Kevin Kolevar, assistant secretary for electricity delivery and energy reliability at the Department of Energy. Three crude oil pipelines were also shut.

Power Cuts

Exxon Mobil Corp. yesterday shut its Baton Rouge refinery, its second-largest plant, after Gustav cut power in the region. More than 900,000 homes and businesses lost power in Louisiana and Mississippi, and the failures are expected to spread as the storm moves inland, according to Gulf Coast utilities.

Louisiana yesterday asked the federal government to release fuel from the Strategic Petroleum Reserve to help alleviate disruption to refiners and wholesalers.

Gustav, packing winds of 80 miles an hour (130 kilometers an hour), was near Opelousas, Louisiana, at 4 p.m. New Orleans time, according to the National Hurricane Center in Miami. The storm has weakened further to Category 1.

Tanker traffic in the Gulf is frequently disrupted by storms during the North Atlantic hurricane season that runs June through November. September is usually the busiest month for storms, accounting for about a third of all hurricanes making landfall in the U.S., hurricane center records show.

Two more storms have formed in the Atlantic. Hanna, the fourth hurricane of the season, is near the Bahamas and is expected to move along the east coast of Florida later this week and reach land in Georgia or South Carolina.

Tropical Storm Ike formed yesterday, halfway between Africa and the Leeward Islands, and may strengthen to a hurricane later today, the hurricane center said.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net; Gavin Evans in Wellington at gavinevans@bloomberg.net