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Oil prices rise as Gustav looms Crude falls as Gustav fears ease
(about 4 hours later)
Oil prices have risen by more than a dollar after energy firms shut down oil production in the Gulf of Mexico as Hurricane Gustav approaches the US. Oil prices have fallen after weather forecasters said Hurricane Gustav was not strengthening as it approached the US Gulf of Mexico coast.
The storm is set to hit the Louisiana coast at midday local time on Monday. With Gustav due to make landfall at midday local time, it has remained a Category Three hurricane rather than intensifying to a Four or Five.
Light, sweet US crude was up $1.54 at $117 a barrel in Asian trading. London Brent crude was up $1.42 at $115.47. US light crude oil was down $5 to $113.90 a barrel in afternoon trading in Europe, after earlier rising $1.54.
Analysts said that Gustav may inflict more damage to the region's oil rigs and refineries than hurricane Katrina in 2005. London's Brent crude was down 79 cents to $113.26 a barrel.
Massive power supply cuts are likely and its hard to prepare a refinery against any kind of flooding Anthony Nunan, analyst, Mitsubishi 'Katrina legacy'
The region produces 25% of the US's crude oil and 15% of its natural gas. Despite the relief that Gustav remains a Category Three hurricane, it is important to remember that 2005's devastating Hurricane Katrina was rated at the same strength.
About 4,000 offshore oil and gas facilities are located in the US gulf, 100 of which were badly damaged three years ago by Katrina and the follow on Hurricane Rita. That hurricane badly damaged 100 of the 4,000 offshore oil and gas facilities in the US Gulf.
Crude shutdown The track of the current storm suggests that it will veer straight into the bulk of the US offshore facilities.
"This is right on the bull's eye," said Anthony Nunan, an analyst at Mitsubishi in Tokyo. The industry is much more prepared and taking things much more seriously. That's why so much has been shut down so quickly." Phil Flynn of Alaron Trading
"Massive power supply cuts are likely and its hard to prepare a refinery against any kind of flooding. If there's a very prolonged outage, a big rally is possible" he said. Almost all oil and gas production in the region - which produces 25% of the US's crude oil and 15% of its natural gas - is now shut down ahead of Gustav.
Energy companies have closed down more than 96% of the area's oil output and 82% of gas as of Sunday afternoon US time, the US Minerals Management Service said. Hurricanes are graded from One to Five, with Five being the strongest.
Exxon Mobil, Royal Dutch Shell, BP and North America's largest refiner Valero Energy were among the firms that have shut down Gulf Coast refineries. Gustav is currently producing wind speeds of 115mph (185km/h).
Altogether, around 2.4 million barrels of refining capacity has been halted, 15% of the nation's total, according to figures from energy group Platts. Analysts said the experience of Katrina in 2005 meant that the energy sector and other industries in the US gulf were now much better prepared.
The Category Three storm is also expected to hit other industries in the region including sugar and shipping.
'Katrina's legacy'
Authorities have ordered the evacuation of New Orleans and an estimated 1.9 million people along the Gulf coast have been heading inland.
Crude prices had increased last week as concern mounted about Gustav, before finishing slightly down on Friday.
"This is Katrina's legacy," said Phil Flynn of Alaron Trading in Chicago."This is Katrina's legacy," said Phil Flynn of Alaron Trading in Chicago.
"The industry is much more prepared and taking things much more seriously. That's why so much has been shut down so quickly.""The industry is much more prepared and taking things much more seriously. That's why so much has been shut down so quickly."
New Orleans, Louisiana's main city, and surrounding areas have been evacuated ahead of Gustav.