Oil Drops Below $109 as Hurricane Sandy Shuts Refineries

Brent crude oil fell below $109 a barrel on Monday as refineries along the U.S. East Coast wound down operations ahead of the approach of Hurricane Sandy, reducing crude use in the world’s largest oil consumer.

One of the largest refineries on the U.S. East Coast began shutting down on Sunday and three other plants cut output as the storm, which forecasters say could be the largest ever to hit the U.S. mainland, threatened power outages and a massive storm surge across the region.

Brent crude futures for December dropped $1.04 to a low of $108.51, before recovering slightly to around $108.90. Brent posted a 0.5 percent loss last week.

U.S. light crude was down 78 cents at $85.50.

“With refineries cutting runs, we’re likely to see a build-up in crude stocks which could be driving bearish prices at the moment,” said an economist at National Australia Bank in Melbourne.

Oil also came under pressure from falling stock markets as investors focused on weak corporate earnings.

The FTSE Eurofirst 300 index index of top European shares followed Asian markets lower, dropping 0.2 percent in early trade. London’s FTSE 100, Paris’s CAC-40 and Frankfurt’s DAX opened down between 0.3 and 0.7 percent.

The euro fell 0.3 percent to $1.2890, at the lower end of its recent broad range between $1.28 and $1.31, waiting for bailout prospects for Spain and Greece to become clear.

Hurricane Sandy was expected to hit the East Coast on Tuesday morning. The CME will suspend floor trading on Monday at its NYMEX world headquarters ahead of the storm, although electronic dealing will operate normally.

Phillips 66 on Sunday started shutting its 238,000 barrels per day (bpd) refinery in New Jersey while three others reduced rates. The rate cuts come after a rise of nearly 6 million barrels in U.S. crude stocks in the week to October 19.

U.S. heating oil and RBOB gasoline futures and their crack spreads rose as speculators expect fuel supply to tighten and are betting on wider price spreads between products and crude.

“Markets will be watching for reports of damage to energy infrastructure, notably refineries, post-Sandy given the state of extremely low gasoil inventories as we move into winter season,” Deutsche Bank analysts said. Expectations for a cold start to winter will further tighten gasoil supply, they said.

Speculators cut their net long U.S. crude futures and options positions to the lowest level in three months in the week to October 23 as prices fell by almost 6 percent, the U.S. Commodity Futures Trading Commission said.

The impending restart of Britain’s largest oilfield and a quick recovery in Nigerian crude output also limited Brent’s gains. The Buzzard field in the North Sea is expected to restart by Monday and its operator, Nexen, has said it will return to full operations over the next two weeks.