Oil prices ease as Gustav steadies

Oil prices fell back today as weather forecasters said Hurricane Gustav was not strengthening during its advance on the US coast.

Light, sweet crude traded on the New York Mercantile Exchange – - the world’s benchmark price – dropped nearly five dollars to $113.90 (€77) a barrel during the session. Trading was taking place in Europe as US markets were shut for Labour Day.

Prices had risen earlier above the $118 (€80) level amid fears of widespread disruption to oil production in the Gulf of Mexico as the storm made its way towards land.

Oil companies including Royal Dutch Shell have said they were shutting down production and evacuating facilities ahead of the storm.

Altogether, about 2.4 million barrels of refining capacity have been halted, roughly 15% of the nation’s total, according to industry estimates.

Forecasters had expected Gustav to strengthen further before making landfall later today, but said the storm would hold steady as a Category 3, with wind strengths of around 115 mph. “Observations from an Air Force hurricane hunter aircraft indicate that Gustav is not strengthening,” the US-based National Hurricane Centre (NHC) said.

In London, October Brent crude was down 79 cents to 113.26 a barrel on the ICE Futures exchange.

About 1.9 million people have left the Louisiana coast region, the largest evacuation in state history, and thousands more left from Mississippi, Alabama and flood-prone south-east Texas.

Gustav has already killed at least 94 people on its path through the Caribbean, and comes three years after Hurricane Katrina killed 1,600, mostly from flooding in New Orleans.

The eye of the storm will hit Louisiana’s south-east coast after 7pm Irish time, according to a forecast by the NHC.