London: Oil prices dived to four-month lows on Monday, sliding below $110 in London as a weakening Hurricane Gustav reduced the threat of damage to energy facilities in the Gulf of Mexico, analysts said.
Brent North Sea crude for delivery in October plunged as low as $109.20 a barrel, a level last seen on 1 May. It later recovered slightly to stand at $110, a drop of $4.05 from Friday’s close.
New York’s main contract, light sweet crude for delivery in October, slid 4.07 to $111.39 a barrel after touching as low as $110.63 a barrel, which was also four-month nadir.
Crude futures had risen by more than a dollar in Asian trading on Monday after Hurricane Gustav forced the suspension of almost all US energy production in the Gulf of Mexico, traders said.
“Crude prices have pulled back since opening higher, as market participants believe the impact from Hurricane Gustav will not be as bad Hurricane Katrina” on oil installations, said Sucden analyst Nimit Khamar.
US officials said on Sunday that more than 96% of Gulf oil production and 82% of natural gas output had been stopped because of Gustav.
About one quarter of US oil production comes from the Gulf, while the United States is the world’s biggest energy-consuming nation.
But the hurricane, which on Monday was downgraded to a Category Two storm as it headed towards the Gulf Coast, was not expected to be as bad as the Hurricane Katrina disaster of 2005.
Katrina made landfall near New Orleans on 29 August, 2005, smashing poorly-built levees surrounding the city and causing massive floods that destroyed tens of thousands of homes and killed nearly 1,800 people.
“The market seems to be of the opinion that the industry is more prepared for such events following the damage wrought during the 2005 hurricane season,” Barclays Capital analyst Kevin Norrish said on Monday.
Hundreds of troops were sent into New Orleans after what is being called the biggest evacuation in US history.
Torrential rain and intense winds blasted Louisiana as Hurricane Gustav neared New Orleans and the Gulf Coast on Monday after forcing nearly two million people to flee.
Elsewhere, the oil market was gearing up for next week’s meeting of the Organisation of Petroleum Exporting Countries.
Saudi-led OPEC would likely decide to leave its current output quotas unchanged when members meet for a regular scheduled meeting in Vienna on September 9, cartel member Libya said Monday.
“Probably, we will do nothing (at the meeting),” the head of the Libyan national oil company, Shukri Ghanem, told AFP by telephone.
“We think the market is well supplied, if not oversupplied,” said Ghanem, whose position is equivalent to that of oil minister.
A source close to the Nigerian government also said he expected no change in output.
Falling demand for crude oil because of a slowing global economy has caused oil prices to drop in recent weeks from their record highs of more than $147 a barrel reached in July.
Some members of Opec, which produces about 40% of world oil, have expressed concerns over the recent fall in prices, sparking speculation the cartel could cut output if the price falls below $100.