Singapore: Oil prices fell below $106 a barrel on Tuesday in Asia - $10 below its close on Friday before the US Labour Day weekend - as investors shifted their focus to slowing global demand after worries about Hurricane Gustav subsided.
Light, sweet crude for October delivery was trading at $106.03 a barrel in electronic trading on the New York Mercantile Exchange midafternoon in Singapore, and at one point dropped as low as $105.46.
On Monday, when US trading was closed for Labour Day, the contract had plunged $4.34 to $111.12 a barrel in late electronic trading. On Friday, the contract settled at $115.46 a barrel.
Traders were relieved that Gustav weakened as it approached the offshore oil rigs and Louisiana refineries, and appeared to have caused less damage than expected in New Orleans and surrounding areas.
But they quickly turned their attention to slowing global economic growth, speculating that will dampen demand for crude oil, even in developing countries such as China and India.
“The market continues to be weighed down by worries of a global economic downturn and slowing oil demand in developing markets,” said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore. “Action by OPEC and supply side concerns should put a backstop to any sharp price drop.”
The Organization of Petroleum Exporting Countries is scheduled to meet on September 9 and has indicated it may take action to defend the $100 a barrel level.
There was some disruption to oil supplies as oil companies shut down production and evacuated facilities ahead of Gustav.
Altogether, about 2.4 million barrels of refining capacity had been halted, roughly 15 % of the US total, according to figures from Platts, the energy information arm of McGraw-Hill Cos. The Gulf Coast is home to nearly half of the nation’s refining capacity.
It could be a day or more before oil and natural gas companies can assess the damage to their drilling and refining installations.
Louisiana Gov Bobby Jindal said as much as 20% of oil and gas production that was stopped because of Gustav could be restored by this weekend, stressing that it was a rough estimate.
Traders are also keeping an eye on other storms brewing in the region.
Hurricane Hanna was predicted to come ashore in Georgia and South Carolina late in the week, and Tropical Storm Ike formed late on Monday in the Atlantic Ocean and may become a hurricane in the next 36 hours as it approached the Bahamas.
In other Nymex trading, heating oil futures fell 15.44 cents to $3.0375 a gallon, while gasoline prices lost 16.92 cents to $2.685 a gallon. Natural gas for October delivery fell 47.3 cents to $7.472 per 1,000 cubic feet.
In London, October Brent crude was trading at $105.54 a barrel on the ICE Futures exchange.