Hurricane Gustav avoids offshore oil platforms

Crude oil prices slide 5% from minimal damage

By Tom Stundza -- Purchasing, 9/3/2008 11:45:00 AM

Although Hurricane Gustav's forced the closing of offshore oil platforms that handle a quarter of the nation’s petroleum production and 15% of the natural gas output, the storm’s punch to the Gulf Coast energy complex was lighter than feared, bringing relief and lower prices to energy markets.

It is unlikely that offshore facilities completely avoided damage as the storm packed 120-mile-per-hour winds during the weekend. But, as reports of minimal damage to the Gulf of Mexico's many oil facilities have trickled in, crude oil futures slid $5.75, or 5%, to $109.71 a barrel on Tuesday, the lowest close in New York's trading pits in nearly five months. Natural gas fell 68¢ per million BTUs from Friday, or 8.6%, to settle at $7.26.

Dow Jones News Service reports that about 40% of U.S. refining capacity is located in a band along the coast from Mississippi to Texas. Louisiana is crisscrossed by 75,000 miles of pipelines. The Gulf Coast also is the nation's front door for foreign oil: of the 10 busiest crude-oil ports in the country, seven are between New Orleans and Houston. And while oil and gas production in the Gulf of Mexico has been dropping, it remains the largest U.S. source of crude oil and a major source of natural gas.

Also impacting the crude oil slide was a reading by the Institute of Supply Management on U.S. manufacturing activity that showed a slight contraction to 49.9 for August on an index where 50.0 signifies growth. The five industries reporting growth in August were paper products; chemical products, computer and electronic products, miscellaneous manufacturing and apparel, leather and allied products. The industries reporting contraction in August were wood products; plastics and rubber products; primary metals, fabricated metal products; machinery, transportation equipment and furniture and related products.