Oil falls ahead of Isaac, seen hitting refinery demand

Mon Aug 27, 2012 5:58pm EDT
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By David Sheppard

NEW YORK (Reuters) - Brent crude oil futures fell toward $112 a barrel on Monday, reversing early gains as Tropical Storm Isaac shuttered refineries on the U.S. Gulf Coast, cutting 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.

After U.S. trading closed, the National Hurricane Center (NHC) said Isaac will probably be a Category 2 hurricane when it makes landfall in Louisiana on either Tuesday night or Wednesday morning. Earlier, it had forecast it would be a Category 1 hurricane, which is weaker than Category 2.

While crude prices fell on lower demand, gasoline prices jumped as U.S. energy companies started shutting refineries ahead of a possible 12-foot (3.6-meter) storm surge. The Gulf Coast is home to almost 45 percent of U.S. refining capacity.

"Traders realize that there is more refining capacity at risk from this storm, and that the risk is also to oil consumption," said analyst Tim Evans at Citi Futures Perspective in New York.

"That's why we see today that crude prices are off and near-term gasoline prices are rising. It is similar to the price action we had ahead of Hurricane Katrina."

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.

U.S. 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.   Continued...