Oil prices fell slightly to below $109 a barrel Wednesday, weighed down by slowing demand in the United States and other consuming nations and signs the US oil sector would recover quickly from Hurricane Gustav. US crude traded down 36 cents to settle at $109.35 a barrel by 1700 GMT, after ending on Tuesday below its 200-day moving average, a key technical level, for the first time since May 2007. London Brent fell 32 cents to $108.02.
Prices have fallen by more than $6 since Friday after Hurricane Gustav proved to be less devastating than feared. Initial checks on US energy installations in the Gulf of Mexico showed little damage, and the Louisiana Offshore Oil Port - the nation's only deepwater port - was expected to resume operations in the next couple of days.
Companies closed 14 refineries and shut in all of the 1.3 million barrels per day of oil production in the Gulf at the peak of the storm's impact Monday, but by Wednesday two refineries had restarted and some offshore production was trickling back online. Now that the storm has passed, analysts said, slowing oil demand in the United States and other consumer nations would continue to depress oil prices, which have dropped from a record of $147.27 set on July 11.
"It's the economy, economy, economy. Everyone's worried about demand destruction," said Robert Nunan, a risk management executive at Tokyo-based Mitsubishi Corp Surging oil demand in emerging economies such as China and India underpinned a six-year rally in crude prices that sent prices up sevenfold at their peak.
Further strength this year came from a rush of cash from investors buying commodities as a hedge against inflation and the weak US dollar. But the dollar has since rallied, hitting an 11-month high against a basket of major currencies on Wednesday. The rapid changes in the commodities market have been bruising for some. Tuesday, Ospraie Management LLC said it would close down a flagship fund, although it still manages $4 billion in other investment funds.
"I don't think one hedge fund will have much impact, though it probably helped the market to come down," Christopher Bellew of Bache Commodities said, adding the market remained bearish in the short term. "We have a strong dollar and weak hurricanes," he said. More storms were brewing in the Atlantic, but so far were not threatening the US Gulf of Mexico. Tropical Storm Hanna could strike the US East Coast, while Hurricane Ike continued westward across the Atlantic and was projected to be in the vicinity of the Bahamas by Sunday.
Any disruption caused by Gustav will not be fully reflected in US inventory data until next week. The latest set of data will be released Thursday, a day later than usual because of a public holiday in the United States on Monday. A Reuters poll of analysts forecast stockpiles of crude rose 200,000 barrels last week, gasoline supplies fell 1.4 million barrels and distillates rose 500,000 barrels.