Oil, gas prices fall to April levels after Gustav weakens

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Oil and gasoline prices plunged to the lowest levels since April on Tuesday after Hurricane Gustav failed to wreak havoc as feared with critical oil and gas facilities in the Gulf of Mexico.

Forecasts that the storm could cause extensive destruction prompted oil companies to shut down nearly all the region’s drilling and refining operations over the Labor Day weekend. But the unexpected weakening of the storm before it swept through prompted officials to predict little destruction in its wake even before they finished surveying offshore operations for damage from the wind and waves.

As of midday Tuesday, all the region’s 1.3 million barrels a day of oil production remained shut off, and 13 refineries that deliver 2.5 million barrels a day of gasoline, diesel and other products to consumers remained closed, according to the Department of Energy.

Most company employees were evacuated from offshore drilling platforms for safety reasons and others left the region because of mandatory evacuations ordered by the government. But key personnel were expected to be back on the job as early as Wednesday.

The Colonial pipeline, the main conduit bringing fuel into the Washington area, was operating at reduced capacity due to power outages and shutdowns at pumping stations in central Louisiana. Because of ample supplies at most gas stations, however, the cutbacks had not caused an increase in pump prices.

“The refinery sector had a large amount of its resources in the path of Hurricane Gustav this past week, but was spared significant damage,” said Frank Maisano, an energy specialist at Bracewell & Giuliani. “In fact, oil prices fell back today on the news that impact was minimal.”

Oil prices fell $5.75 to within sight of $100 a barrel on early reports of little damage from the hurricane, settling at $109.71 a barrel on the New York Mercantile Exchange. It was the lowest trading level since April 4, just before oil’s meteoric rise to records over $147 per barrel in July.

While oil prices are down by nearly half since July, regular gas prices also have retreated nearly 10 percent to $3.68 from a record of $4.11 a gallon in a free fall that was barely slowed by the hurricane’s approach, according to AAA.

The big drop in fuel prices raised spirits on Wall Street, where specter of high oil prices has been feeding fears of inflation and cutting into profits. The Dow Jones Industrial Average jumped as much as 150 points in early trading before retracing to a 27-point decline.

The markets “breathed a sigh of relief” that “what some politicians expected to be the storm of the century” proved to be a disappointment, said Tobias Davis, analyst at Custom House, a Canadian investment company.

Some fuel shortages developed in the Gulf region as a result of people filling their tanks in the mass evacuations. But oil companies said they are shifting resources there and the Bush administration said it stands ready to release oil from the Strategic Petroleum Reserve if Gulf refineries say they need the extra supplies.

One major question was the fate of the Louisiana Offshore Oil Port. Gustav staged a direct hit on the facility, which handles about 12 percent of the nation’s crude imports and is tied by pipeline to about half the nation’s refining capacity, much of it along the Mississippi River from the New Orleans area north to Baton Rouge. Any prolonged closure of the port could severely disrupt crude imports and their shipment to refineries.

President Bush said Congress should not view the storm’s apparently modest impact as an excuse to keep doing nothing to increase energy supplies.

“When Congress comes back, they’ve got to understand that we need more domestic energy, not less,” said Mr. Bush, who is visiting Louisiana Wednesday to survey damage. “One place to find it is offshore America - lands that have been taken off the books, so to speak, by congressional law. And now they need to give us a chance to find more oil and gas here at home.”

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