Oil Prices Fall As Inventories Shrink

NEW YORK – Crude oil prices slipped Thursday after U.S. petroleum data showed inventories shrank slightly less than traders expected after Hurricane Katrina’s direct hit on refineries, platforms and pipelines in the Gulf of Mexico.

Crude oil inventories fell 6.4 million barrels in the week ending Sept. 2, according to U.S. Department of Energy’s weekly petroleum inventories report released Thursday – a day late because of the Labor Day holiday. At 315 million barrels, crude inventories are still 13 percent above year-ago levels.

Gasoline inventories dropped 4.3 million barrels to 190.1 million, 9 percent lower than a year ago. Distillate fuel inventories – which include heating oil – fell 800,000 barrels to 134.4 million, 3 percent higher than a year ago.

"From an economic viewpoint, these numbers were encouraging," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. "Especially encouraging were the distillate numbers … We’re going to have enough oil to weather the storm."

Markets had been bracing for major declines in crude and refined oil supplies because of Katrina. A Dow Jones Newswires survey showed analysts had expected crude stocks to fall 6.8 million barrels, gasoline stocks to fall at least 3 million barrels, and distillates to fall 1.5 million barrels.

Light, sweet crude for October delivery fell 27 cents to $64.10 a barrel in late morning trading on the New York Mercantile Exchange, after rising as high as $65.15 before the inventory data were released. Prices had sagged $1.59 to settle at $64.37 a barrel Wednesday after the U.S. government lowered a demand growth forecast due to dramatic increases in energy costs in the wake of Katrina.

At London’s International Petroleum Exchange, October Brent futures fell 25 cents to $62.64.

Gasoline futures were less than a cent lower at $2.02 a gallon, reflecting the end of the U.S. summer driving season, while heating oil fell more than 2 cents to $1.9400.

More than 57 percent of oil production in the Gulf and more than 40 percent of gas production remained shut as of midday Wednesday, according to the Minerals Management Service.

As those operations began to recover, Florida braced for Tropical Storm Ophelia, which strengthened off Florida’s Atlantic coast early Thursday. Forecasters could not yet predict its path or if it would reach hurricane status. Analysts say the 15th storm of the Atlantic hurricane season could complicate recovery efforts, even if it does not bear down on production sites or refineries.

The U.S. Gulf Coast produces more than a quarter of the nation’s crude, gasoline and natural gas.

Nymex crude remains around 50 percent higher than a year ago, but is more than $6 off its intraday high of $70.85 reached Aug. 30 in the wake of Katrina.

"We still have had a pretty good correction from the peak," Flynn said. "It shows that there’s a lot of confidence in the oil industry and the economy."

Oil prices had fallen in the past week partly in reaction to the decision by the International Energy Agency to release 60 million barrels of petroleum to help ease possible shortages.

And on Wednesday, a U.S. Energy Department report predicted a 100,000 barrel per day increase in U.S. petroleum demand in 2005. That is down from 160,000 barrels per day a month earlier "largely due to sharply higher prices," the department said.

Domestic oil production and refinery output should return to pre-hurricane levels by November, the U.S. Energy Department said.

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Associated Press Writers George Jahn in Vienna, Austria, and Gillian Wong in Singapore contributed to this report.