Oil prices sink as hurricane scare passes

NEW YORK - Oil prices plunged to the lowest level in five months Tuesday, falling to within sight of $100 a barrel on signs that Hurricane Gustav only grazed U.S. energy infrastructure in the Gulf of Mexico.

Light, sweet crude for October delivery fell $5.75 to settle at $109.71 a barrel on the New York Mercantile Exchange, after earlier dropping as low as $105.46. It was the lowest trading level since April 4, just before oil began an unprecedented march above $147 per barrel.

Virtually all oil and natural gas production remained shut down in the Gulf of Mexico as energy companies began assessing damage to offshore platforms, rigs and pipelines, according to the U.S. Minerals Management Service. It was too soon to say when output might resume, though some oil companies were preparing to redeploy evacuated personnel as early as Wednesday.

Without serious damage, oil and natural gas facilities could start up again in a day or two, while coastal refineries could take two to four days to resume production, depending on their size. In 2005, Hurricanes Katrina and Rita knocked out the region's offshore energy infrastructure for several weeks.

"Unlike three years ago, it looks like they're going to get in there fairly quickly and get things ramped up again," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill. "You don't have these platforms bobbing in the Gulf of Mexico like fishing corks. They're pretty much intact."

The drop in oil prices weighed heavily on commodities across the board.

Natural gas futures fell 68.2 cents, or 8.5 percent, to settle at $7.261 per million British thermal units, their lowest closing price since late December.

But traders grew less jittery when Gustav weakened as it neared the offshore oil rigs and Louisiana refineries.

After the storm was downgraded to a tropical depression early Tuesday, oil market traders quickly turned their attention to slowing global economic growth, speculating that demand for crude will be dampened even in rapidly expanding China and India.

"The magnitude of this pullback suggests the market is fully focused on demand destruction," Ritterbusch said. "The speculators, hedge funds and other investors are getting out of this market on a major scale."

Meanwhile, at the pump, a gallon of regular gasoline fell less than half a penny to a new national average of $3.684, according to auto club AAA, the Oil Price Information Service and Wright Express. That's more than 10 percent lower than the record of $4.114 a gallon set July 17.

Also weighing on oil Tuesday was a stronger dollar vs. the euro. A rising greenback encourages selling from investors who bought oil as a hedge against inflation.

The Organization of the Petroleum Exporting Countries is scheduled to meet Tuesday in Vienna and has indicated it may take action to defend the $100 a barrel level.

Ahead of Gustav, about 2.4 million barrels of refining capacity was halted, roughly 15 percent of the U.S. total, according to figures from Platts, the energy information arm of McGraw-Hill Cos.

Royal Dutch Shell PLC, BP PLC and other major oil companies conducted flyovers of platforms and rigs Tuesday, searching for major signs of damage or oil spills. More than 80 percent of energy production platforms and rigs in the Gulf were evacuated before the storm.