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After timeout for Gustav, oil prices resume slide

No major damage reported at Gulf of Mexico facilities

September 03, 2008|Elizabeth Douglass and Ronald D. White | Times Staff Writers

The biggest repercussions from Hurricane Gustav's brush with the Gulf Coast oil complex played out in energy markets Tuesday instead of at refineries and oil rigs, as reports trickled in that damage to key facilities was mostly minor and oil prices plunged below $110 a barrel in response.

Teams of oil industry and government employees fanned out across the region, inspecting shut-down refineries responsible for more than 10% of the nation's gasoline production and boarding helicopters and planes to fly over oil platforms that account for 25% of U.S. oil output.

"The good note is that we have not gotten any reports of major damage at this point," said John Rodi, deputy director of the Gulf of Mexico region of the U.S. Minerals Management Service. He added that more thorough inspections would take several days, "after which we'll have a really definitive idea of what's damaged and what's not damaged."

Although most oil companies wouldn't predict when their operations might return to pre-hurricane levels, Shell Oil Co. and others were already ferrying employees to offshore facilities in preparation for restarting oil production. Some refineries were ramping back up.

With little evidence of significant harm to fuel-related infrastructure, light sweet crude for October delivery fell to as low as $105.46 a barrel before settling at $109.71, down $5.75 on the New York Mercantile Exchange.

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 inflicted by Hurricanes Katrina and Rita in 2005, Gustav's effects "will be over in a matter of days" and oil and gasoline prices should continue to fall, he said.

"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.

Some experts believe the Organization of the Petroleum Exporting Countries will cut production to stem the fall in oil prices. But Oppenheimer & Co. oil analyst Fadel Gheit said he wouldn't be surprised if the cost returned to year-ago levels of around $50 to $60 a barrel.

"Demand for oil from China is slowing down. In Japan and Europe, the developed economies are slowing down also. All of these factors will be bearing down on oil prices in the coming weeks and months," Gheit said.

Pump prices continued to slide. The average price of a gallon of self-serve regular gasoline dipped by half a cent nationally to $3.68, the Energy Department reported Tuesday. California motorists got a bigger break, with prices dropping a nickel to an average of $3.905, according to the government's weekly Monday survey of filling stations, released a day late because of the Labor Day holiday.

A day after Gustav's Gulf Coast rampage, the region's offshore oil production -- all 1.3 million barrels a day of it -- remained shut down. As the storm approached over the weekend, companies evacuated workers from 632 of the gulf's 717 stationary oil-production platforms, according to the U.S. Minerals Management Service.

In addition, more than 95% of the region's natural gas production of 7.4 billion cubic feet a day remained off line Tuesday. Workers from most offshore natural gas facilities were evacuated, as were employees from 110 drilling rigs in the gulf.

Onshore, 14 Gulf Coast refineries were still not operating and output was reduced at 10 other facilities, the government said. The Louisiana Offshore Oil Port, a major facility for oil imports, was still down.

Citgo, which runs a refinery in Lake Charles, La., asked the U.S. Energy Department for 250,000 barrels of oil from the nation's Strategic Petroleum Reserve, and the request was granted late Tuesday. So far, that is the only such request, Energy Department spokeswoman Alyson Austin said.

As was the case after Katrina, power outages emerged as the biggest obstacle to bringing refineries and pipelines back into operation.

Damage to power lines and other equipment at Entergy Corp., a major Louisiana utility, left five of the 12 major refineries in its territory without service, according to Platts, an industry news publisher. Among those without power: two large refineries operated by Motiva, along with Alon USA Energy Inc. and Placid Refining facilities near Baton Rouge, Platts said.

Entergy officials on Tuesday called the utility's damage "massive" -- creating the company's second-largest outage after Katrina -- and during a news conference wouldn't estimate when power might be fully restored.

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