Oil May Escape Katrina's Wrath

Forecasts suggest the hurricane will veer north and not disrupt crude.
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Updated from 3:02 p.m. EDT

Crude futures closed lower Friday as chances improved that Hurricane Katrina posed little threat to the oil operations in the Gulf of Mexico, spurring traders to collect some profits.

The October oil contract had been higher earlier, but ended the day down $1.36 to $66.13 a barrel on Nymex. The futures contract closed at a record $67.49 on Thursday. Gasoline futures fell 4 cents to $1.92 a gallon, and heating oil slid 3 cents to $1.84 a gallon.

Katrina, which hit the southeast coast of Florida Thursday night and has so far led to three deaths, shifted from land in to the Gulf, but the storm's expected path would take it north over the Florida panhandle, well away from the core of oil production.

Earlier in the day, concerns lingered that Katrina had the potential to disrupt supplies from the production and refining facilities located along the shores of Mississippi and Louisiana, which provide roughly 25% of the U.S. supply.

"It looks like some short-term profit-taking," said Lee Fader, a trader at ABN Amro. "Also, this is a very thin market so it doesn't take much to move it in either direction. People are squaring up before the weekend."

BP

(BP) - Get Report

said on Thursday it was evacuating nonessential personnel from one of its production facilities in the Gulf.

Royal Dutch/Shell

(RDS.A)

also evacuated some workers from its Gulf operations but said production hasn't been affected

Previous storms this summer have forced the evacuation of offshore rigs and halted offloading of imported oil at ports. Refineries have also had to shut down units ahead of approaching hurricanes, an action that held back the supply of millions of barrels of crude.

Still, with ample U.S. crude inventories that have been steadily growing over the past year, the market seems capable of absorbing minor supply disruptions

Gasoline retail prices soared this week to record highs across the nation, reflecting the tight refining capacity in the U.S. and shrinking gasoline inventories.

On Wednesday, Hawaii enacted caps on wholesale gasoline prices in an effort to reduce consumer costs at the pump. Gas rose to $2.76 a gallon in the state that day. Hawaii's move was the first time in more than two decades that a state intervened by rolling out fuel caps on fuel.

A multitude of refinery outages in the past few weeks contributed to higher gasoline prices, the latest being a fire in

Tesoro's

(TSO)

Golden Eagle facility near San Francisco. The refiner said Thursday a unit that produces 70,000 barrels a day has been shut down.

Among the major oil producers, shares mostly down.

Exxon Mobil

(XOM) - Get Report

fell 0.8%,

ConocoPhillips

(COP) - Get Report

dropped 1.4%, BP fell 1.5%, and

Chevron

(CVX) - Get Report

dropped 0.4%.

Valero

(VLO) - Get Report

also fell 0.4%.

John Selser, a partner at the hedge fund Maple Leaf Partners, says he's concerned about reports showing global and U.S. crude inventories are high and poised to continue increasing. "I don't think oil equities are reflecting the possibility that in the near future we could be oversupplied," he says.

Selser believes that in the long term oil prices will remain high, but nearer term he expects a pullback toward the end of this year. He explains that during the months between the end of summer and the first frost, demand for gasoline usually winds down and refinery crack spreads tend to decline. Crack spreads are the difference between a barrel of crude oil and the retail price of the refined product.

Among the energy stocks Maple Leaf Partners owns are

Noble Energy

(NBL) - Get Report

,

Chesapeake Energy

(CHK) - Get Report

and the coal producer

Peabody Energy

(BTU) - Get Report

.

"I am somewhat reluctant to add to existing positions. I would like to see oil prices come down before I do," Selser said. "The market is currently flooded with a lot of uninformed money. People who don't understand the cyclical nature of this market will mistake a seasonal correction for a downturn."

Selser anticipates a correction will bring prices down because "it's hard to see $67 oil holding given the levels of inventories."

The Philadelphia Oil Service Sector Index was down 1.2% in late Friday trading, weighed down by a 1.5% decline at

Global Industries

(GLBL)

.