Oil fell today as Hurricane Gustav showed no signs of picking up more strength as it headed toward the Louisiana coast after forcing the shutdown of nine refineries and nearly all US Gulf of Mexico oil production.
Weather models early today continued to show Gustav hitting the Louisiana coast later in the day as a major Category 3 hurricane, forcing companies to shut in 96 per cent of Gulf oil production and 82 per cent of natural gas output.
At least 12.5 per cent of total US refining capacity was shut down and other plants cut rates. The Louisiana Offshore Oil Port, the only US port capable of offloading the biggest oil tankers, halted all operations yesterday.
US crude slipped 60 cents to $114.86 a barrel by 1140 GMT, after touching $118.60 a barrel when the New York Mercantile Exchange (NYMEX) opened for electronic trading several hours earlier than usual. Trade in the United States will be shut due to the US Labour Day holiday.
London Brent crude fell 65 cents to $113.40 a barrel.
Despite the shutdowns, analysts said crude slipped from highs as forecasts showed the storm was not strengthening beyond earlier projections.
"Gustav is not strengthening," said Mike Wittner of Societe Generale. "That could be bearish."
Gustav is the biggest threat to the region - home to a quarter of US oil output and 15 per cent of natural gas output - since Hurricanes Katrina and Rita wrecked more than 100 offshore oil platforms in 2005 and closed several large refineries for months.
"This is definitely a dangerous storm but I think most of the market is in a wait-and-see mode, waiting to see (if there are) disruptions to oil facilities and pipeline infrastructure before they make a big move," said Gerard Burg, a commodities analyst at the National Bank of Australia in Melbourne.
Nearly two million people fled the Louisiana coast and more than 11 million residents in five US states were braced for the impact from the fast-moving storm, which was expected to make landfall around New Orleans.
The NYMEX declared force majeure on all delivery obligations under its August and September natural gas futures after ports and the Henry Hub delivery point were shuttered.
Gains in the dollar also helped pressure crude, traders said. Investors rushed into commodities earlier in the year as a hedge against inflation and the weak dollar.
Iran's oil minister said yesterday $100 a barrel was the lowest acceptable price for crude. Iran, Opec's second-largest producer, has said the oil market is oversupplied as prices have dropped from the record high over $147 a barrel struck in July.
Opec meets in Vienna on September 9th to discuss output policy but other member nations have not come out and publicly backed Iran. Venezuela and Ecuador said on Friday that they expect the oil exporters group to maintain current output levels.
Geopolitical tensions between Russia and the West also lent support to oil prices.
Russia does not want a confrontation with the West but will hit back if attacked, Kremlin leader Dmitry Medvedev said yesterday, a day before EU leaders meet to draft a response to Moscow's actions in Georgia.
Russia, the world's largest exporter of natural gas and the second-largest oil exporter, supplies more than a quarter of Europe's gas needs.
Reuters