Oil prices lower as hurricane fears ease

NEW YORK -- Oil fell yesterday on forecasts Gulf of Mexico refineries and offshore production platforms would not be hit by Hurricane Dean.

Crude erased some earlier losses on news that Mexico, a top US oil supplier, shut more than 80 percent of output as the storm churned toward its Bay of Campeche production center.

US crude settled down 86 cents at $71.12 a barrel on the New York Mercantile Exchange after trading down to $70.05 earlier. London Brent crude fell 59 cents to $69.85 a barrel.

"I think we are down on the fact that Dean is going to bypass the [US] Gulf of Mexico in terms of production," said Eric Wittenauer, analyst at A.G. Edwards.

The National Hurricane Center forecast Dean would spin south of the US portion of the Gulf, home to about half of US refining capacity and one-third of domestic oil production. The storm was expected to cross the Yucatan Peninsula into Mexico's Bay of Campeche.

Analysts said forecasts that Gulf Coast refiners, slammed by hurricanes Katrina and Rita in 2005, would escape undamaged helped bring down gasoline futures 5 percent and dragged down the rest of the oil complex.

The government said it was ready to make emergency oil loans from the nation's Strategic Petroleum Reserve to refineries, if necessary, to help offset any loss of Mexican oil supplies due to Hurricane Dean.

High domestic oil inventories will provide a cushion for US refiners to replace oil exports from Mexico, the Energy Information Administration said.

Packing winds of 150 miles an hour, Dean was likely to become a Category 5 hurricane before making landfall on the Yucatan early today, the hurricane center said.

US operators had shut around 42,000 barrels per day out of 1.3 million barrels per day of Gulf oil output and 100 million cubic feet per day out of 7.7 billion cubic feet per day of natural gas on storm threats, the US government said.

Oil had rallied Friday, recovering from its lowest close in a month and a half after the US Federal Reserve cut its discount lending rate by a half percentage point, lifting stock markets that had been battered by the credit market squeeze.

Calm returned slowly to financial markets yesterday, but there were lingering signs that credit problems persist despite policy-makers' insistence that global economic growth would remain solid.

Last week's losses in financial markets had taken a toll on oil as investors sold to cover positions, knocking US crude prices down nearly 10 percent from the record high on Aug. 1.

A Reuters poll of analysts forecast US weekly government oil inventory data to be released tomorrow would show crude stocks off 2.9 million barrels, gasoline stocks down 900,000 barrels, and distillate stocks up 800,000 barrels.