Oil falls below $109 a barrel as Gustav blows over

London: Oil fell below $109 (Dh400) a barrel on Wednesday, weighed down by slowing demand in the US and other consuming nations and signs that the US oil sector would recover quickly from Hurricane Gustav.

US crude traded down $1.40 to $108.31 a barrel by 1425 GMT (6.25pm UAE time) after settling below its 200-day moving average, a key technical level, for the first time since May 2007 on Tuesday.

London Brent crude fell $1.12 to $107.22 a barrel.

Prices have fallen by $7 from last Friday after Hurricane Gustav proved to be less devastating than feared.

Initial checks on US Gulf of Mexico energy installations showed little damage, and the Louisiana Offshore Oil Port (LOOP) - the nation's only deepwater port - expects to resume operations in the next few days.

Companies had closed 13 refineries and shut in all of the 1.3 million barrels per day (bpd) of oil production in the Gulf of Mexico and 95.4 per cent of the region's natural gas output.

Now that the storm has passed, analysts say slowing oil demand in the US and other consumer nations would continue to depress oil prices, which have dropped from a record of $147.27 on July 11.

'Demand destruction'

"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 yesterday.

The rapid changes on the commodities market have been bruising for some.

On Tuesday, Ospraie Management LLC said it would close down a flagship fund, although it still manages $4 billion in other investments Traders said the closure could have added to losses on commodity markets this week, but they did not expect the impact to continue.

'Not much impact'

"I don't think one hedge fund will have much impact, though it probably helped the market to come down," said Christopher Bellew of Bache Commodities, adding the market remained bearish in the short term.

More storms were brewing in the Atlantic, but so far were not threatening the Gulf of Mexico.