Oil Trades Near 5-Month Low as Drillers, Refiners Plan Restarts

By Nesa Subrahmaniyan and Christian Schmollinger

Sept. 2 (Bloomberg) -- Crude oil traded near its lowest in five months as producers and refiners prepared to restart output at facilities after Hurricane Gustav passed the U.S. Gulf Coast without causing major damage to offshore platforms.

Gustav was downgraded to a Category 2 hurricane before it crossed the coast and is weakening as it heads inland. Royal Dutch Shell Plc will begin checks today and may restore full output in three to five days. ConocoPhillips said there was no significant damage to a platform in the area.

``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.''

Crude oil for October delivery was at $108.72 a barrel at 2:47 p.m. Singapore time, down 5.8 percent from the close of Aug. 29 on the New York Mercantile Exchange. It fell as much as 6.1 percent to $108.33 a barrel earlier. 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 $7.502 per million British thermal units, down 5.6 percent, while October gasoline was at $2.6850 a gallon, down 5.9 percent.

``The worst of the fears have been calmed,'' said David Moore, a commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney. ``The fact that prices are so quickly reverting back to these levels shows that maybe the underlying bearishness in the market is still there.''

Oil prices have fallen 25 percent from the record $147.27 a barrel reached on July 11 on signs of slowing global demand and as the rising dollar reduced the appeal of commodities.

Location, Damage

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.

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.

Strategic Reserves

The governor earlier called for the federal government to release oil from the country's strategic petroleum reserves.

Exxon Mobil Corp., the world's biggest oil company, will request oil from the reserves tomorrow for its refineries, Jindal said. Shell is also expected to request oil from the reserves, he said.

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.

``That is the whole incredible thing about all this -- a lot of it is pure luck,'' said Anthony Nunan, assistant general manager for risk management at Mitsubishi Corp. in Tokyo. ``As Gustav weakened, it meant less storm surge.''

Brent crude oil for October settlement fell as much as $2.30, or 2.1 percent, to $107.11 a barrel on the ICE Futures Europe Exchange. It was at $107.62 at 2:54 p.m. Singapore time. The contract had risen as high as $110.45 today.

Refinery Shutdowns

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.

Valero Energy Corp., the biggest U.S. refiner, said an initial assessment of its refinery in St. Charles, Louisiana, found ``no significant structural damage'' to operational units.

The refinery has electricity supply, while the state of the surrounding power grid run by Entergy Corp. is ``uncertain,'' Bill Day, a Valero spokesman, said in an e-mailed statement. Valero will conduct a complete survey of the refinery today while developing a resumption plan, Day said.

The company's Port Arthur and Texas City refineries in Texas operated at reduced rates and the Corpus Christi plant is running normally, Day said.

ConocoPhillips, the second-largest U.S. refiner, said its 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.

The Alliance refinery processes 247,000 barrels of crude oil a day and the Lake Charles facility has a daily crude throughput of 239,000 barrels, according to Conoco's Web site.

To contact the reporters on this story: Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net; Christian Schmollinger in Singapore at christian.s@bloomberg.net.