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Weaker Gustav loses hold on energy costs

Refineries and rigs emerge unscathed

By John Porretto
Associated Press / September 2, 2008
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HOUSTON - The punch of Hurricane Gustav appeared to fall softly yesterday on the vast energy complex along the US Gulf Coast, alleviating fears of a fuel shortage and potentially delivering a break to businesses and consumers.

As winds passed over land and began to subside, oil market traders began to focus not on storm damage, but on their growing anxiety over the state of the global economy.

Even with 110 mile per hour winds raking refineries that line the coast and rushing over the deep-water rigs off the shores of Texas and Louisiana, the price for a barrel of oil dropped by more than $4 a barrel to just above $111 because Gustav was weaker than expected.

The average price for a gallon of gasoline slipped less than a cent overnight after beginning to rise for the first time in more than a month on the storm's approach, according to the auto club AAA, the Oil Price Information Service, and Wright Express.

Still, the storm's impact on production platforms, drilling rigs, and other equipment likely won't be fully known for another day or so.

Assuming no damage, it typically takes two to four days to restart a refinery, depending on its size. It can take a day or two to get offshore oil and natural gas production going again.

Transocean Inc., the world's largest offshore drilling contractor, said yesterday it appeared its three moored, semisubmersible rigs in the Gulf remained anchored in position during the storm.

Transocean said eight other rigs that used thrusters to move out of the storm's path also were safe and would be moving back to their drilling locations as soon as yesterday evening.

In recent days, oil companies shut down virtually all oil and natural gas production in the Gulf, and the storm's threat halted about 15 percent of the nation's refining capacity based in the region.

Any serious damage to oil platforms and rigs or prolonged refining disruptions could cause a spike in energy prices. Eqecat Inc., a risk modeling firm, projected yesterday that Gustav could knock out capacity for about 5 percent of both oil and natural gas production for the next year.

However, one factor likely to mitigate any impact from the storm on prices is that many analysts believe the country's appetite for fuel has been reduced by high prices and slower economic growth.

"US demand has fallen dramatically," said Linda Rafield, an analyst at Platts, the energy information arm of McGraw-Hill Cos. "People look like they're making what I'd call a long-term adjustment in consumption patterns."

All that appeared to be supporting oil prices over the past week was Gustav. With many betting the US energy complex in the Gulf survived largely intact, attention returned almost immediately to the state of the global economy.

Markets in Asia tumbled sharply. The sell-off in Europe was less pronounced.

Light, sweet crude for October delivery fell $4.34 to $111.12 in late afternoon electronic trading on the New York Mercantile Exchange. On Friday, the contract fell 13 cents to settle at $115.46 a barrel.

The US Gulf Coast is home to nearly half the nation's refining capacity, while offshore, the Gulf accounts for about 25 percent of domestic oil production and 15 percent of natural gas output.

Eating away at prices even before the storm entered the Gulf were suggestions that additional crude supplies would enter the market if Gustav caused severe damage to the Gulf's oil facilities and hampered production.

The Paris-based International Energy Agency said yesterday it was closely monitoring the storm and, "bearing in mind prevailing market conditions, . . . stands ready to act quickly and provide oil to the market as it did after Hurricane Katrina in 2005."

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