Oil loses ground as Hurricane Gustav nears landfall
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September 1st, 2008
Oil futures turned lower Monday in electronic trading as weather models showed little sign Hurricane Gustav would strengthen before making landfall later in the day on the U.S. Gulf Coast.
“No significant change in strength is likely before landfall,” the National Hurricane Center in Miami said in its latest update. That means Gustav is likely to hit the coast as a Category 3 hurricane rather than the Category 4 storm that had been predicted.
Nymex crude-oil futures for October delivery erased modest early gains and were $1.33 lower at $114.13 a barrel in electronic trade. Trading in futures pits and other U.S. financial markets are closed Monday for the Labor Day holiday.
Category 3 hurricanes have wind speeds of 111 to 130 miles per hour.
The latest weather update eased market worries that Gustav would rival the strength of Hurricane Katrina, which reached category 5 strength before making landfall three years ago as a category 3 hurricane, said analysts at Sucden
Also, traders are reluctant to add long positions, the Sucden analysts wrote, “as the current sentiment is bearish amid concerns over demand destruction.”
Traders are “waiting to see if there will be any major disruptions before reacting. Whereas, when Hurricane Katrina hit, oil markets were concerned with how future supply would keep up with rising demand.”
“The reaction among market participants is relatively calm,” added analysts at Jyske Bank.
Approximately 96.26% of the oil production in the Gulf had been shut-in, according to operator reports Sunday, reported the Minerals Management Service, a bureau in the U.S. Department of the Interior.
The Gulf produces about 1.3 million barrels of oil per day, according to the agency. About 82.3% of natural-gas production is shut-in, the federal bureau said.
The Louisiana coastline is already feeling the impact of the hurricane, which is expected to make landfall toward midday.
Most of the 2 million residents of coastal Louisiana and New Orleans have been evacuated. The Republican Party, meanwhile, has scaled back plans for its nominating convention in St. Paul, Minn.
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