Crude oil may fall as Ike makes landfall

Crude oil may fall next week after Hurricane Ike makes landfall and refineries and production platforms along the Texas coast resume operation.

Fourteen of 29 analysts surveyed by Bloomberg News, or 48 per cent, said prices will decrease through September 19. Twelve of the respondents, or 41 per cent, said oil will rise and three said prices will be little changed. Last week 43 per cent expected futures to increase.

US refiners were in the process of shutting an estimated 12 per cent of plant capacity yesterday as Ike advanced toward Houston, the largest US petroleum port. The storm is expected to make landfall tomorrow south of Galveston, according to the Miami-based National Hurricane Center. "The market will slip lower after Hurricane Ike, as Gulf of Mexico production returns to normal," said Robert Laughlin, senior broker at MF Global Ltd in London.

The Organisation of Petroleum Exporting Countries (Opec) said this week that its members will cut production. Opec agreed to a limit for 11 members of 28.8 million barrels a day, its official target rate. Opec Secretary-General Abdalla El Badri said this means it will trim "oversupply" by about 500,000 barrels a day.

"The Opec meeting having passed, there is little bullish news likely to appear," Laughlin said.

Crude oil for October delivery dropped $5.05, or 4.8 per cent, to $101.18 a barrel this week on the New York Mercantile Exchange. Futures have fallen 31 per cent since touching $147.27 a barrel on July 11, the highest since trading began in 1983.

The oil survey has correctly predicted the direction of futures 49 per cent of the time since its start in April 2004.

Meanwhile, Hurricane Ike, which will make landfall along the US Gulf Coast, caused more than 19 per cent of the US refining capacity to close and may limit fuel deliveries across the country.

At least 13 refineries in Texas were shutting down as Ike approached. Gulf Coast refineries and ports are the source of about 50 per cent of the fuel and crude used in the eastern half of the US. Plants operated by Exxon Mobil Corp, Valero Energy Corp, ConocoPhillips and Royal Dutch Shell Plc were affected.

Petrol shortages may occur across the southern US up to Washington because of the closures caused by Hurricane Gustav and now Ike, Kevin Kolevar, assistant secretary for electricity delivery and energy reliability at the US Department of Energy, said on a conference call.

"We expect to see constrained supplies of refined products," he said. "The administration will utilise every tool at our disposal to lessen the likelihood of limited fuel supplies", including tapping the Strategic Petroleum Reserve.

Ike bore down on the coast with winds increasing in strength to 175 kilometres an hour. Coastal areas faced a storm surge as high as 25 feet, the National Hurricane Center in Miami said on its website.

The storm idled about 98 per cent of oil production and 94 per cent of natural-gas output in the Gulf of Mexico, the US Minerals Management Service said yesterday. Gulf fields produce 1.3 million barrels oil a day, about a quarter of US output, and 7.4 billion cubic feet of gas.