Oil companies halted 96 percent of offshore oil production and about 10 percent of U.S. refining capacity in preparation for Gustav, which was downgraded to a Category 2 hurricane, the second-weakest category, before coming ashore in Louisiana.
Crude oil for October delivery fell $4.28, or 3.7 percent, to $111.18 a barrel at 4:13 p.m. in electronic trading on the New York Mercantile Exchange. It has traded as high as $118 a barrel and as low as $110.60 a barrel since the electronic session began at 2:30 p.m. yesterday. Oil is 20 percent below the record of $147.27 a barrel reached July 11.
Natural gas for October delivery fell 43.3 cents, or 5.5 percent, to $7.51 per million British thermal units, while October gasoline fell 10.42 cents, or 3.7 percent, to $2.75 a gallon on the Nymex.
Brent crude oil for October settlement fell $4.64, or 4.1 percent, to settle at $109.41 barrel at 1:46 p.m. New York time on the ICE Futures Europe Exchange.
Gulf Coast refineries have cut at least 1.56 million barrels a day of production, about 9.8 percent of the U.S. total. Exxon Mobil Corp. reduced operating rates at its three plants including Baton Rouge, while Royal Dutch Shell Plc plans to close its Capline crude oil pipeline system as supplies from fields shut by the storm dwindle.
Gustav, packing winds of 90 miles an hour (145 kilometers an hour), was northeast of Franklin, Louisiana, at 2 p.m. New Orleans time, according to the National Hurricane Center in Miami. The storm has weakened further to Category 1.
The storm was weaker than Hurricane Katrina three years ago, which sent oil prices to records after wrecking refineries around New Orleans. Katrina's intensity was greatest over the Gulf, where it damaged rigs, platforms and undersea oil and gas pipelines. It then weakened to a Category 3 hurricane before reaching land.
The Gulf of Mexico normally produces about 1.3 million barrels of oil and an estimated 7.4 billion cubic feet of gas a day, according to the Minerals Management Service, part of the U.S. Interior Department.
Two more storms are further out in the Atlantic. Hanna, which today became the fourth hurricane of the season, is near the Bahamas and is expected to move along the east coast of Florida later this week and reach land in Georgia or South Carolina. Tropical Depression Nine formed today, halfway between Africa and the Leeward Islands, and could become a tropical storm later today.
Nymex electronic trading opened early to allow traders to respond to Gustav. Trades will be recorded as part of the Sept. 2 session because of today's U.S. Labor Day holiday.