Oil refinery damage could be less severe than feared

CRUDE oil prices dropped sharply yesterday, the second straight day of declines, as traders welcomed news that Hurricane Rita had weakened, suggesting that damage to refinery capacity in the Gulf could be less severe than originally feared.

Refineries in the projected path of the hurricane were shuttered, including facilities operated by BP PLC, Royal Dutch Shell PLC and Exxon Mobil Corp. Nineteen of Texas’ 26 refineries, with a combined daily capacity of nearly five million barrels, have been shut, according to the Energy Information Agency.

However, unlike refining facilities shut down by Hurricane Katrina - four of which were still out of service yesterday - traders expected less damage from Rita because the Texas refineries were on higher ground than those in Louisiana.