Oil fell below $66 a barrel and gasoline prices slid today as Hurricane Rita lost some intensity, while its direction may avert a direct hit on the heart of the Texas refining hub near Houston.
But with almost 30 per cent of US refining capacity shut down across the Gulf Coast and gasoline inventories already running low, many dealers took a cautious approach, waiting to see whether Rita wreaks as much havoc as last month's Katrina.
US light crude was down 86 cents to $65.64 a barrel, extending overnight losses of 30 cents. London Brent crude fell 78 cents to $63.82 a barrel.
The storm, still a Category 4 and equivalent in ferocity to Hurricane Katrina, is expected to hit by Saturday the upper Texas and southwest Louisiana coast, just to the east of main production and population centres in Galveston, Houston and Corpus Christie.
The US Department of Energy is ready to loan oil from its Strategic Petroleum Reserve (SPR) as it did after Katrina, but it has little resource to deal with a shortfall in refined products.
"If there is a supply disruption, which there is a good chance there will be, they may not hesitate to release the SPR and we already have crude oil and products coming from Europe after Katrina," said John Brady, broker at ABN AMRO in New York.
In addition to four refineries still out of action after Katrina, 13 Texan and two Louisiana plants have been closed as a precaution against Rita. Four others have reduced operations. Exxon Mobil announced the closure of the country's largest refinery at Baytown, Texas and its Beaumont facility, the two disabling more than 900,000 barrels per day (bpd) alone.