Updated from 1:52 p.m. EDT

Oil prices tumbled Friday as Hurricane Rita lost some power and looked less likely to inflict a direct hit on the heart of the Texas refinery region.

Crude for November delivery fell $2.31 to $64.19 a barrel on Nymex. Unleaded gasoline fell about 5.4 cents to $2.09 a barrel.

"The market is saying something," said Bill O'Grady, director of market analysis at AG Edwards. "It's saying that in spite of all these dire predictions of all sorts of calamities, the oil market's softer. What's even more surprising is that product prices are softer, too."

In its 5 p.m. EDT update, the National Hurricane Center said Rita was about 155 miles east-southeast of Galveston, Texas, and about 140 miles southeast of Port Arthur. Rita is moving northwest and is expected to make landfall as a "dangerous" storm near the Texas-Louisiana border at daybreak Saturday. Rita, which has been reduced to Category 3, has maximum sustained winds of 125 mph.

The storm's current track poses less of a threat to Houston, where most of the Texas refineries are located. Still, about 90% of the Gulf's offshore oil platforms have been evacuated and about a million barrels of crude a day are refined in Port Arthur, near the storm's likely landfall.

Texas is home to about a quarter of U.S. refinery capacity. Valero ( VLO - Get Report) has scaled back operations at three Gulf Coast facilities ahead of the storm, while refineries operated by ConocoPhillips ( COP - Get Report), Royal Dutch ( RD) and Exxon ( XOM - Get Report) have been closed.

"There's going to be a substantial amount of rain and wind," O'Grady said. "And a lot of refineries have shut down. But with all that said and done, it'll probably be less catastrophic for the oil business than what we thought a couple of days ago."

O'Grady compared analysts who have been making dire predictions about Rita to TV weathermen.

"It's better to predict a foot of snow and get a dusting," he said, "than to predict a dusting and get a foot of snow."

In company news, the Department of Labor's Occupational Safety & Health Administration said BP Products of North America has agreed to pay more than $21 million in penalties for safety and health violations connected to the March 23 fatal explosion at the company's Texas City, Texas, plant that killed 15 workers and injured more than 170 others. Shares of BP ( BP - Get Report) were down 79 cents to $70.58.

Entergy ( ETR) said one of its subsidiaries, Entergy New Orleans, filed for Chapter 11 bankruptcy so it could continue restoring power and gas service to New Orleans after Hurricane Katrina. Entergy New Orleans also asked the court for "debtor-in-possession" financing that includes the parent company, Entergy, making loans up to $200 million to the subsidiary. A court date is set for Monday. Shares of Entergy were up 84 cents to $71.87.

W&T Offshore ( WTI - Get Report) said it had named Stephen Landry as vice president and chief financial officer. Reid Lea, the former CFO, has been promoted to executive vice president and manager of corporate development. Shares of the Houston-based company were down 9 cents to $31.30.

Oil driller Nabors Industries ( NBR - Get Report) postponed a Sept. 28 analyst meeting, citing the potential impact of Hurricane Rita. The company said it hasn't set a make-up date. Barbados-based Nabors will also close its Houston offices this afternoon to give employees time to evacuate. Shares of Nabors were off $1.12 to $69.36.

Atmos Energy ( ATO - Get Report), the largest natural gas distributor in Texas, said it does not expect supply interruptions from the storm. But the company warned the disruption in the national gas supply system will likely increase all natural gas costs, at least in the short term.

Indeed, the Nymex declared so-called "force majeure" on September natural gas contracts, suspending delivery obligations following the closure of the Sabine Pipeline on coastal Louisiana.

Canadian energy and chemicals company Nexen ( NXY) said it filed for a secondary offering of 7.5 million common shares held by the Ontario Teachers' Pension Plan. The offering has been subscribed to on a "bought-deal" basis by TD Securities Inc. at a price of $54.25 per share. Nexen was down $2.33 to $46.62.