Hurricane Gustav hits oilfield areas, but gas prices go down

— -- Hurricane Gustav took a direct hit on the Gulf of Mexico, temporarily suspending 100% of oil production in the Gulf, yet gasoline prices appear lower.

It seems improbable, but energy prices are often driven more by psychology than by high winds. And unless inspections this week find unexpected damage, pump prices are likely to fall.

"It's a crazy, crazy market," says Peter Beutel, an oil analyst at Cameron Hanover, who says the market turned south in early July. Before that, almost any hiccup would send prices up. Now, behind a strengthening dollar, recession fears and energy conservation, nothing seems to slow a price decline.

"We had 2 million barrels of refinery production knocked out, and the market goes $4 lower," Beutel says. A stretch of blue skies, he says, could sink oil below $85 a barrel, and gasoline to $3 a gallon.

"This market just does not have the stomach it once did for higher prices," Beutel says.

Gustav's muted effect on prices is a sharp contrast to three years ago, when Hurricane Katrina so devastated production that gasoline prices jumped from about $2 to $3 a gallon. As Gustav approached, there were fears that prices might surpass the $4.11 record of July.

But crude oil for October delivery slid to $111 a barrel Monday, from $115.46 on Friday, and to its lowest point since April. Motor club AAA reported Monday that the average price of regular gasoline was $3.69 a gallon, same as on Sunday and down 20 cents from a month ago.

Still, Chuck Watson, research and development director for Kinetic Analysis, which estimates the impact of hurricanes and other disasters, fears one wild card: the Louisiana Offshore Oil Port, known as the LOOP, which took a direct hit. The LOOP, 40 miles south of New Orleans, is where tankers carrying more than 10% of the nation's imported oil dock. From the LOOP, oil moves via an underwater pipeline to refineries.

If the pipeline is damaged, Gustav will have created a "crisis," Watson says.

Even so, Gustav's impact on the energy industry will be nowhere near that of Katrina and Rita, says Satish Nagarajaiah, professor of engineering at Rice University in Houston and an expert on hurricane damage to energy structures. The LOOP and energy infrastructure throughout the Gulf that came to a standstill by Sunday morning, he says, "will be back up in a few days."