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 up 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 a gallon, their lowest closing price since late December.
On Friday, crude prices settled at $115.46 a barrel as Gustav approached the Gulf Coast region, home to a quarter of US. crude production and 40 percent of refining capacity. 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 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 all-time record of $4.114 a gallon set July 17.
Also weighing on oil Tuesday was a stronger dollar versus the euro. A rising greenback encourages selling from investors who bought oil as a hedge against inflation.
However, crude prices could recover if the dollar weakens again or if oil-producing countries cut back on output to keep prices high, as some analyst have speculated.