Oil price sold off as Rita winds down

Oil prices fell about a US$1 ($1.45) a barrel in special Sunday trading after Houston refineries escaped damage from Hurricane Rita although plants further east in Port Arthur and Lake Charles were hit harder.

US crude, open for a special Sunday session, was down US$1.09 at US$63.10 a barrel. US gasoline dropped 9.81USc to US$1.9875 a gallon and London Brent crude lost 93USc to US$61.51 a barrel.

US crude hit a low of US$62.65 during the session.

The Federal Emergency Management Agency said refinery damage was minimal.

Crude shed more than US$2 on Friday as dealers calculated a weakening Rita would veer wide of a cluster of refineries around Houston, Texas as it hit land on Saturday. Prices hit a record US$70.85 after Hurricane Katrina four weeks ago.

"We dodged a bullet with this storm," said Pasadena Refining spokesman Chuck Dunlap, which has a Houston-area refinery.

An assurance from the International Energy Agency, coordinator for the release of emergency stocks among 26 industrialised nations, that it would consider filling a supply disruption also helped undermine prices.

"Prices had already factored in a Category 5 hurricane, so when the storm lost intensity and headed further east the market sold off," said John Brady, broker at ABN Amro in New York.

Texas Governor Rick Perry said his state's refineries should be back soon."It appears the refining industry, the oil and gas industry [sustained] a glancing blow at worst. Hopefully they'll be back in production very soon," Perry said.

"It looks like there will be some delays in getting some refining back up but it doesn't look too bad," said Gary Ross, chief executive of New York consultancy, PIRA Energy.

"The US gasoline market will remain somewhat tight but there's no doubt that US demand has been hurt by the high retail prices after Katrina," he added.

As assessments rolled in, there was damage reported at two of the three refineries in Port Arthur, east of Houston.

Valero Energy said it sustained "significant damage" at its 250,000 barrel a day Port Arthur refinery and said a restart could take two weeks to a month.

Total said it would also take two weeks to a month to restart its refinery in the same city. Shell, the third Port Arthur operator, gave no immediate estimate.

Some damage also was likely at the two refineries in Lake Charles, Louisiana where 5m storm surges were recorded but there was no immediate assessment from their operators.

Many of the other US Gulf refineries appeared to have escaped unscathed and some with power around Houston were in start-up mode.

Exxon Mobil said it began to resume operations at its 557,000 barrel per day Baytown, Texas, refinery, the largest in the United States.

"There's still going to be more refineries down than there were two weeks ago," said ABN Amro's Brady.

The US Coast Guard said eight of 38 mobile offshore drilling units in the path of the storm were adrift yesterday.

Helping keep a cap on prices was an assurance from the International Energy Agency on the availability of government inventories following a 30-day release after Katrina.

The IEA said on Saturday it was assessing the impact of Rita and had held talks with the United States. The agency has said that if Rita caused crude or refined fuel supply disruption then it could order another release of oil from emergency reserves.

In Nigeria, often a flashpoint for oil supply disruptions, a detained militia leader whose followers threatened to blow up oil facilities after his arrest has told them to refrain from violence, his lawyer said yesterday.

Followers of Mujahid Dokubo-Asari issued a series of threats against the oil industry after his arrest on Tuesday, prompting the army and police to increase their presence in the restive Niger delta.

- REUTERS