Fingers crossed in U.S. oil sector as hurricane hits

HOUSTON (Reuters) - Energy companies watched anxiously on Monday as Hurricane Gustav lurched across the nation's largest concentration of oil platforms and refineries in the biggest threat to U.S. fuel supplies since 2005.

Nearly all oil and gas production in the Gulf of Mexico and more than a quarter of U.S. refining capacity was shut or slowed as a precaution by the time Gustav struck the coast and moved inland near New Orleans on Monday.

But energy experts were hopeful the weakening storm would cause less damage to infrastructure than hurricanes Katrina and Rita which three years ago destroyed more than 100 offshore oil rigs and flooded several large refineries -- signaling a quicker recovery in energy production.

"The storm has been downgraded and it looks like the main portion of the refinery district is going to escape a significant hit," said Jim Ritterbusch of Ritterbusch and Associates in Galena, Illinois.

The U.S. government has said it is ready to release crude oil stocks from the nation's emergency reserve if Gustav causes a lasting disruption, and it waived environmental quality standards for gasoline in Texas and Louisiana to ensure adequate retail supplies.

Crude oil futures fell nearly 4 percent on Monday to about $111 a barrel, while natural gas futures were down more than 5 percent.

DAMAGE REPORTS

Gustav weakened into a Category 1 hurricane on the five-step Saffir-Simpson scale, with winds of 90 mph (145 kmh), after hitting the coast near Port Fourchon, a key logistical port West of New Orleans that supports 75 percent of Gulf of Mexico drilling operations.

The storm was weaker than had been feared. But waves splashed over floodwalls containing the New Orleans Industrial Canal, triggering a tense watch over the barrier system that failed three years ago.

Energy companies are unlikely to have much information about the condition of offshore platforms and coastal refineries until Gustav passes, allowing evacuated workers to return to the facilities.

"It's going to be a couple of days for checks at any of the (offshore) production facilities," Chevron spokesman Mickey Driver said. "We've got to let them get out there and we're not going to rush things."

The Gulf of Mexico accounts for about a quarter of U.S. oil production and 15 percent of its natural gas production, and refineries along the coast produce more than a third of the nation's fuel.

Local law enforcement officials in Louisiana said on Monday afternoon there was no evidence yet of flooding around the state's big oil refineries.

Louisiana Gov. Bobby Jindal, however, called on the federal government to release emergency crude oil supplies to counteract fuel shortages that could develop in the wake of the storm.

The foul weather also forced shut several key waterways along the coast and triggered the shutdown of the Louisiana Offshore Oil Port, a major conduit for U.S. crude imports.

(Reporting by Erwin Seba, Richard Valdmanis, Robert Campbell, Bruce Nichols and Chris Baltimore; writing by Richard Valdmanis; editing by Matthew Lewis and Jan Paschal)