Oil prices tumbled to the lowest since April on early evidence that Hurricane Gustav did little damage to critical energy production facilities in the Gulf of Mexico.
Light, sweet crude for October delivery dropped $5.75 to settle at $109.71 a barrel, the lowest since early April. In early July, oil reached a peak of $147, sending gasoline prices above $4 a gallon.
Nearly all oil production platforms and 95% of natural gas facilities in the Gulf remain shut down. But several energy giants, including BP, Royal Dutch Shell and Chevron sent crews in helicopters and airplanes over oil platforms and refineries Tuesday to make early assessments. The companies would not discuss detailed findings, but federal officials said damage appears to be minimal.
"Preliminary reports were positive," says Eileen Angelico of the Minerals Management Service, a federal agency that manages oil and gas resources in the area. "They didn't see a lot of damage."
Valero spokesman Bill Day said an on-site inspection of the company's St. Charles, La., refinery late Monday appeared to confirm there was "no significant structural damage."
Companies would not say when production platforms and refineries will reopen. Some producers said it will take several days for evacuated employees to return and for the area's electricity grid to stabilize.
Research firm Tudor Pickering Holt & Co. said much of the region's energy infrastructure could be operating at close to full capacity by the end of the week.
The Gulf region accounts for 25% of U.S. oil production, 15% of natural gas output and 42% of refining capacity.
Tom Kloza, chief oil analyst at Oil Price Information Service, says Tuesday's price decline was largely a response to the reports that Gustav only grazed the area's oil facilities.
He said prices will likely bounce between $88 and $133 the rest of the year. The Organization of Petroleum Exporting Countries is scheduled to meet next week and could prevent further sharp price declines by cutting production, he says. Prices also may get support from return-hungry investors who continue to pour funds into commodities.
Peter Beutel, president of Cameron Hanover, says more basic market dynamics, such as falling demand, are pushing down oil prices: "The market is telling us (oil prices) were too high to begin with."