Oil Falls to Six-Month Low as Refineries Escape Major Damage

Sept. 14 (Bloomberg) -- Crude oil fell to a six-month low in New York and gasoline tumbled amid signs that refineries along the Gulf of Mexico coast will soon resume operations after escaping major damage from Hurricane Ike.

Almost 20 percent of the U.S.'s oil refining capacity was shut, limiting fuel deliveries and prompting the Department of Energy to release 309,000 barrels from its strategic reserves. New York Mercantile Exchange electronic trading opened early to allow traders to respond to Ike.

``It looks like we've dodged another bullet,'' said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut. ``The refineries in the Houston area seem to have come out of the storm remarkably intact.''

Crude oil for October delivery fell $2.10, or 2.1 percent, to $99.08 a barrel at 1:22 p.m. on the Nymex. Futures touched $98.55, the lowest since Feb. 26. Prices are up 25 percent from a year ago. Gasoline for October delivery fell 12.91 cents, or 4.7 percent, to $2.6405 a gallon in New York.

CME Group Inc., the world's biggest futures exchange, began Nymex electronic trading of energy contracts at 10 a.m. New York time today. Trading normally opens at 7 p.m. Sundays.

Oil in New York has fallen 33 percent from a record $147.27 a barrel on July 11 as high prices and slowing global economic growth reduce demand for fuels. Sales at U.S. retailers dropped in August for a second straight month and July inventories at American businesses increased the most in four years, Commerce Department reports showed last week.

Trumping Ike

``Growing fears about the economy are trumping any fears about the damage caused by Hurricane Ike,'' said John Kilduff, senior vice president of risk management at MF Global Inc. in New York. ``The broader issue is the weakness of the financial system. Given the Lehman and WaMu watch, cash looks better than any speculative investment.''

Barclays Plc, the U.K.'s third-biggest bank, pulled out of talks to buy Lehman Brothers Holdings Inc. today as the U.S. government raced to find a solution for the faltering investment bank. Washington Mutual Inc. plummeted in New York trading last week on speculation about its financial health.

At least 13 refineries in Texas including plants operated by Exxon Mobil Corp., Valero Energy Corp. and Royal Dutch Shell Plc shut 3.64 million barrels a day of refining capacity as Ike approached Texas.

Lake Charles

Calcasieu Parish, Louisiana, which is home to three refineries, reported ``widespread'' power outages and flooding in Ike's aftermath, Tom Hoefer, the parish's public information officer, said in an interview. Hoefer said the refineries located in Lake Charles likely escaped damage.

The three local refineries, which can process a combined 772,000 barrels a day, are owned by ConocoPhillips, Citgo Petroleum Corp. and Calcasieu Refining Co.

``It looks like the storm surge was greater to the east- northeast so we got a lot of flooding in Lake Charles instead of the Houston area,'' Beutel said. ``The possible damage of the three Lake Charles refineries instead of the 13 in Houston is a trade I would take any day.''

Heating oil dropped 9.41 cents, or 3.2 percent, to $2.845 a gallon. Heating oil touched $2.8325 a gallon, the lowest since March 5. Trades of all the futures contracts will be recorded as part of the Sept. 15 session.

``The crude oil price should be lower because with the refineries down, there is nowhere for it to go,'' Kilduff said. ``The drop in product prices may be short-lived because some of these refineries could be down for weeks.''

Regular gasoline, averaged nationwide, rose 6.2 cents to $3.795 a gallon, AAA, the nation's largest motorist organization, said today on its Web site. Pump prices reached a record $4.114 a gallon on July 17.

Ike Weakens

The National Hurricane Center released its last advisory on Ike at 10 a.m. Houston time when the remnants of the hurricane were centered 60 miles (72 kilometers) east-northeast of St. Louis. Ike had winds of 110 mph at its landfall in Galveston at 2:10 a.m. yesterday.

The storm idled about 99.7 percent of oil production and 98.5 percent of natural-gas output in the Gulf of Mexico, the U.S. Minerals Management Service said yesterday. Gulf fields produce 1.3 million barrels oil a day, about a quarter of U.S. output, and 7.4 billion cubic feet of gas, 14 percent of the total, government data showed.

Natural gas for October delivery fell 4.4 cents, or 0.6 percent, to $7.322 per million British thermal units in New York.
by Mark Shenk
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