Oil prices dive as Gustav passes
With production and refining facilities in the Gulf of Mexico escaping major damage, weak demand rules oil markets.
Crude oil futures tumbled today below $110 a barrel on the New York Mercantile Exchange as a weakened Hurricane Gustav mostly spared Gulf Coast petroleum installations.
Hurricane Gustav was "the dog that didn't bark," said Tom Kloza, chief oil analyst for the Oil Price information Service in New Jersey. Unlike the severe long-term damage sustained during hurricanes Katrina and Rita in 2005, Gustav's impact "will be over in a matter of days" and oil and gasoline prices should continue to fall, he said.
As another analyst put it, Gustav's greatest damage may have been to the hopes of oil-price boosters.
"This was a market that was propped up by a lot of tropical storm threats and this storm blew away a lot of those insecurities. I do not think that oil in the triple digits is safe," said Phil Flynn, vice president and senior market analyst for the Alaron Trading Corp. in Chicago.
"Gustav made us realize that unless we really get a major disruption, demand is the focus in the oil markets, and demand is very poor," Flynn said.
Crude oil futures for October delivery ended the trading day at $109.71 a barrel, down $5.75 on the New York Mercantile Exchange.
Separately, the Energy Department reported today that the average price of a gallon of self-serve regular gasoline dipped by half a cent nationally to $3.68, according to its weekly Monday survey of filling stations, released a day late because of the Labor Day holiday. California motorists got a bigger break, with prices dropping a nickel to an average of $3.905.
Aerial assessments of damage to gulf petroleum facilities turned up no evidence of major damage. The affected area includes refineries responsible for more than 10% of the nation's gasoline production and platforms that provide 25% of the nation's oil output. The federal government's Minerals Management Service said today that all of the gulf's oil production of 1.3 million barrels of oil a day and about 95.4% of the natural gas production of 7.4 billion cubic feet a day remained off line.
Analysts differed on whether a collapse of the oil markets were imminent.
Kloza said oil and gas prices would drift lower on continuing weak demand, with increases likely only if there were serious refinery mishaps or storm damage from Gustav or his cousins that have yet to form.
Another expert said that the drop could be steep.
