Dolly forces refining cuts, hits gas output

By Erwin Seba

HOUSTON (Reuters) - Hurricane Dolly slowly steamrolled across the Texas coast on Wednesday, cutting production at some oil refineries but missing most offshore oil and natural gas production facilities in the Gulf of Mexico.

The disruptions were not enough to stem a fall in oil prices, which are down more than $20 in the steepest dollar drop in the market's history from the record above $147 hit July 11. Oil fell $3.98 on Wednesday to $124.44 a barrel.

"Dolly has not deviated much from its forecast path," said Olivier Jakob, an oil analyst at Petromatrix. "Its price impact potential should now be discounted."

As of Wednesday morning, energy companies in the Gulf of Mexico had shut 4.5 percent of the region's oil production and 7.9 percent of its gas output, according to the U.S. Minerals Management Service.

That reflected a small increase in crude production and small decrease in gas production from Tuesday, according to the MMS report -- though energy analysts said they expected a complete recovery in a matter of days.

Hurricanes in 2005 temporarily shut all of the Gulf of Mexico's oil and gas production, pushing oil prices to then-record highs. The region can produce 1.3 million barrels per day of crude, or a quarter of domestic oil output, and 7.7 billion cubic feet per day of natural gas, or 13 percent of domestic gas output.

Meanwhile, the storm's disruption to shipping around Houston forced at least one refining company to slow down fuel output because of the interruption of cargoes.

Valero Energy Corp said it reduced production between 10 and 20 percent at its refineries in Houston and Port Arthur, Texas.