Crude tumbles lower as Gustav spares Gulf

NEW YORK - Oil prices fell yesterday to the lowest in five months - and within sight of $100 a barrel - as Hurricane Gustav only grazed U.S. energy infrastructure in the Gulf of Mexico.

Light, sweet crude for October delivery fell $5.75 to settle at $109.71 a barrel on the New York Mercantile Exchange. It was the lowest close since April 8, just before oil began a march to its record close of $145.29 on July 3.

"I wouldn't be surprised if prices dip their toe below $100 a barrel," Rich Mueller, director of oil markets for Energy Security Analysis Inc., said. "We are not out of the woods, but the worries over $200 oil have receded." He said he believed oil prices could eventually "bottom out" at $70 to $80 a barrel.

Prices spiked this year on supply contractions in the Soviet Union and Nigeria, and speculators bidding up the price, he said. Price pressure has relented with the slowing economy and shrinking oil demand in the United States. U.S. oil demand could drop 800,000 barrels a day, the first drop since the 1980s, he said.

While gasoline prices have declined along with crude oil, he said heating oil prices could diverge. They will be driven by diesel prices, which are on a tear because of soaring demand in Europe and South America, Mueller said.

The price of gasoline fell a penny yesterday to a national average of $3.68 a gallon. That compares with $3.89 a month ago. In Philadelphia and the four suburban counties in Pennsylvania, yesterday's average was also down a penny, to $3.59. The South Jersey average was unchanged at $3.41.

Virtually all oil and natural gas production remained shut down in the Gulf of Mexico yesterday as initial inspections of the Gulf Coast's extensive energy complex - offshore drilling rigs, platforms and pipelines - confirmed that Hurricane Gustav was nowhere near as destructive as Katrina and Rita three years ago, according to the U.S. Minerals Management Service.

It was too soon to say when output might resume, though some oil companies were preparing to redeploy evacuated personnel back to the Gulf as early as today.

Without serious damage, offshore oil and natural gas production facilities could start up again in a day or two, while coastal refineries could take two to four days to resume operation, depending on their size. In 2005, Hurricanes Katrina and Rita knocked out the region's offshore energy infrastructure for several weeks.

"Unlike three years ago, it looks like they're going to get in there fairly quickly and get things ramped up again," said Jim Ritterbusch of energy consultancy Ritterbusch & Associates, of Galena, Ill.

After the storm was downgraded to a tropical depression yesterday, oil-market traders quickly turned their attention to slowing global economic growth, speculating that demand for crude will be dampened even in rapidly expanding China and India.

However, crude prices could recover if oil-producing countries cut back on output to keep prices high, as some analyst have speculated.

The Organization of the Petroleum Exporting Countries is to meet Sept. 9 in Vienna, Switzerland, and has indicated it may take action to defend the $100-a-barrel level.