Brent crude oil futures fell toward $112 a barrel on Monday, reversing early gains as Tropical Storm Isaac shuttered refineries on the US Gulf Coast, which reduced demand for crude. Traders were also eyeing the possibility of western governments releasing strategic oil reserves to moderate prices, with some analysts suggesting the storm could provide the trigger.
While crude prices fell as much as $2 a barrel, gasoline prices jumped due to the storm's threat to the Gulf Coast, home to almost 45 percent of refining capacity in the world's largest oil consumer. Tropical Storm Isaac churned across the Gulf of Mexico and headed for the Louisiana refining hub, prompting US energy companies to start shutting refineries ahead of the storm and raising prospects for a jump in crude oil stocks. The storm is expected to make landfall by Wednesday.
Brent crude futures fell $1.33 to settle at $112.26, well off the session high of $115.50 a barrel. Traders said they were watching the front-month contract's 200-day moving average of $111.43, a key technical indicator. US crude fell 68 cents to settle at $95.47 a barrel, off the session high of $97.72. RBOB gasoline futures hit a near four-month peak of $3.2050 a gallon, before settling at $3.1548 a gallon, up 2.5 percent.
Trade was light due to a holiday in London, with volumes for both major crude benchmarks almost a quarter below the 30-day average. Isaac is forecast to become a hurricane on Tuesday and make landfall in Louisiana by Wednesday, seven years to the day since Hurricane Katrina devastated New Orleans and knocked out around 4.5 million barrels per day of US refining capacity.
Isaac is expected to be far weaker, however, with the National Hurricane Center (NHC) saying it is not expected to strengthen beyond Category 1, the weakest type on the five-step Saffir-Simpson scale of hurricane intensity. Katrina was a Category 3 hurricane when it made landfall in Louisiana. Oil prices have risen nearly 30 percent since June with international sanctions hitting Iranian exports and maintenance affecting North Sea oil flows.
Reuters reported that the White House was "dusting off" old plans for a possible release on fears that rising oil prices could undermine the effect of sanctions on Iran. "With refineries shutting down along the US Gulf Coast, traders are weighing this up and seeing there may be a glut of crude oil in the market," said Carl Larry, analyst at OilOutlooks in New York.
The International Energy Agency, whose chief recently dismissed the need for a co-ordinated release, is now thought to have agreed to the idea, an industry journal said on Friday. Companies including Marathon Petroleum, Chevron and Phillips66 had closed - or were in the process of closing - at least 1.1 million barrels per day (bpd) of capacity in Louisiana, according to industry and government estimates.
In another indication that regional crude stocks could rise, a fire burned for a third day at Venezuela's biggest refinery on Monday, raising doubts about a speedy restart to operations. US oil production has fallen, however, as US energy companies shut offshore rigs in the Gulf of Mexico, home to 23 percent of total US production. More than 78 percent of Gulf of Mexico oil production was shut-in, the US Bureau of Safety and Environmental Enforcement said, up from 24 percent the previous day.
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