After more than six months in triple-digit territory, oil prices dropped sharply on Monday, falling under the symbolic $100-a-barrel threshold as financial woes raised concerns about a slowing economy and slackening oil demand.
Oil futures in New York closed down $5.47, to $95.71 a barrel, their lowest level since February.
The decline came after a powerful hurricane wreaked havoc in the Gulf of Mexico over the weekend, disrupting domestic oil production and closing refineries along the Texas and Louisiana coasts. While oil companies were still assessing the damage to oil and gas operations on Monday, preliminary reports suggested that it was less severe than first feared.
Still, many refineries along the Gulf Coast, the nation’s largest energy hub, remained closed because of power failures or flooding. It could take weeks before domestic gasoline supplies return to their levels before the storm. These disruptions pushed up gasoline prices even as oil prices fell.
Exxon Mobil said that its refinery in Beaumont, Tex., the nation’s third-largest, was the most seriously hit when a storm surge flooded the refinery. At the nation’s largest refinery in Baytown, Tex., Exxon said power had been restored and the refinery sustained only “limited” damage.
The fact that prices have fallen despite the disruptions caused by Hurricane Ike to offshore production, importing terminals and coastal refineries reflects the deep shift in the market’s sentiment. Oil prices peaked at $145.29 a barrel in July but have since been falling as oil consumption has slowed down drastically in Western countries.
Oil demand should grow by only 700,000 barrels a day this year, about half the normal annual growth rate. All of that growth should come from China and the Middle East, according to the International Energy Agency, the energy watchdog for industrialized countries.
Earlier this year, some analysts had been predicting that surging demand and the limited growth in new supplies would push oil prices as high as $200 a barrel by the end of the year. Many are now scaling back their forecasts given the darkening economic outlook. On Saturday, Paolo Scaroni, the chief executive of Eni, Italy’s largest oil company, predicted that the slowdown could quickly push prices down to $70 a barrel.
The financial crisis finally took the wind out of the oil rally, as some analysts feared it might spread to Asia and Europe, setting off a global downturn.
“Wall Street now has everybody worried about the global economy,” Adam Sieminski, chief energy economist at Deutsche Bank, said.
Falling oil prices could provide a rare piece of bright news for consumers. As oil declined, gasoline futures in New York trading also slipped sharply. Gasoline futures fell as much as 7 percent, to $2.56 a gallon, on Monday.
But at the pump, another picture shaped up. Retail gasoline prices rose over the weekend because of gasoline shortfalls caused by the closed refineries. Gasoline at the pump rose to a nationwide average of $3.84 a gallon on Monday, compared with $3.68 last week, according to AAA, the automobile group.
Hurricane Ike forced the closure of 14 refineries in Texas and Louisiana, or about 20 percent of the nation’s refining capacity. The hurricane, which came ashore near Galveston on Saturday, also shut down the entire oil and gas production from the Gulf of Mexico, or about a quarter of the nation’s domestic production.
Pipeline operations and offshore loading terminals were also forced to suspend their operations. The Louisiana Offshore Oil Port, the nation’s largest import terminal in the Gulf of Mexico, resumed some limited operations on Sunday but oil offloading by tankers remain suspended.
Both the Colonial and Plantation pipelines, two major product pipelines going from the Gulf Coast to the East Coast, were also operating at reduced rates, according to the latest updates from the Energy Department. Energy executives and analysts cautioned that it was too early to determine the exact extent of the damage and how long it would be before full refining operations and production could be restored.
“My guess is the market thinks the hurricane was not as damaging as it might have been,” said Roger B. Plank, executive vice president of the Apache Corporation, a large Gulf producer. “But I think it’s premature to determine when production will be restored.”
Power failures from Hurricane Gustav are still slowing pipeline deliveries from Louisiana a week after that storm passed. Apache has had crews fly over some of its hundreds of Gulf platforms, and Mr. Plank said it was “too early” to make a general assessment of damages.
The Energy Department said it would make oil from nation’s petroleum reserves available to refiners to make up for crude oil shortfalls. On Monday, Citgo Petroleum requested one million barrels of crude from the Strategic Petroleum Reserve “to alleviate potential fuel shortages” caused by Hurricane Ike. The company said it needed the crude for its refinery in Lake Charles, La., one of the rare refineries still operating along the Gulf.
Many analysts are unsure how low oil prices will fall. Last week, the OPEC cartel signaled that it was concerned about prices reaching $100 a barrel, with some members demanding a reduction in production. The move was opposed by Saudi Arabia, the world’s biggest oil exporter, which indicated it would keep pumping oil to get prices down to more manageable levels. What that level is, however, is anyone’s guess.
“The Saudis have been clear,” Mr. Sieminski said, “They think the global economy has got issues and they would like prices to be lower for a while.”
Oil demand remains the biggest wild card. Higher energy prices have caused consumers in developed countries like the United States, Germany and France to cut back on their gasoline use. But in other parts of the world, particularly in developing economies in Asia and the Middle East, where gasoline is generally subsidized, the demand for oil remains strong.
“Clearly we’re in bearish territory but not everything is bearish out there,” said Michael Wittner, the global head for oil research at Société Générale, in London. “The bullish long-term story, Asia-led demand growth meets maturing and more expensive supplies, is still there.”