August 28, 2008 / 4:27 AM / 11 years ago

Oil falls as US, IEA ready emergency stockpiles

NEW YORK (Reuters) - Oil prices fell more than $2 on Thursday after the U.S. government and the International Energy Agency pledged to release emergency stockpiles if Tropical Storm Gustav disrupted U.S. oil production.

Venezuela's President Hugo Chavez takes a sample of crude during his weekly broadcast at a nationalized oil field at Orinoco's belt in the southern strip of the eastern Orinoco River February 17, 2008. REUTERS/Miraflores Palace/Handout

U.S. crude settled down $2.56 at $115.59 barrel, after falling as low as $114.08 earlier. London Brent crude traded down $2.05 to settle at $114.17 a barrel.

Gustav was forecast to strengthen into a hurricane as it neared the Gulf of Mexico, home to a quarter of U.S. crude oil production and 15 percent of its natural gas output.

The storm, packing winds of 70 mph (110 kph), was bearing down on Kingston, Jamaica, at midday Thursday.

Energy companies operating in the Gulf began shutting production and evacuating personnel ahead of the storm, the biggest threat to the region’s oil infrastructure since hurricanes Katrina and Rita in 2005.

The Louisiana Offshore Oil Port — the nation’s only deepwater oil port and a major conduit for U.S. crude imports — expected to stop offloading tankers by this weekend.

The U.S. Department of Energy said Thursday it was ready to tap the nation’s Strategic Petroleum Reserve in the event Gustav caused a severe production disruption, echoing earlier comments from the IEA.

“We always stand ready to bring additional relief to the market, if it’s necessary,” Aad van Bohemen, head of the emergency planning and preparation division at the IEA, told Reuters.

As Gustav churned through the Caribbean, Tropical Storm Hanna formed in the Atlantic Ocean with 40 mph (65 kph) winds and a track that could take it toward the Bahamas and Florida next week, the U.S. National Hurricane Center said.

Hurricanes have become a key focus in the oil market since the 2005 storms temporarily knocked out a quarter of U.S. oil and refined fuel production, sending prices to then-record highs.

Forecaster Planalytics said that any damage to offshore platforms would not be long-lasting, after predicting on Wednesday that up to 85 percent of the Gulf’s oil and natural gas production could be shut in by Gustav.

Faltering demand in the United States and Europe due to high fuel prices has helped knock oil prices from their all-time peak of $147.27 reached on July 11.

Further price weakness on Thursday came from a report from the U.S. Energy Information Administration showing domestic natural gas storage rose 105 billion cubic feet last week, far larger than the forecast in a Reuters poll for a 84 bcf increase.

“The big natgas storage build is lending a bearish tone to the market, even as everyone is still watching Gustav closely,” said Phil Flynn, an analyst at Alaron Trading in Chicago.

Reporting by Matthew Robinson, Robert Gibbons, and Gene Ramos in New York; Jane Merriman in London, and Osamu Tsukimori in Tokyo; editing by Matthew Lewis

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