Oil drops $4 as weakened Gustav hits U.S. Gulf Coast

By Matthew Robinson

LONDON (Reuters) - Oil plunged more than $4 on Monday as concerns that Hurricane Gustav would cause lasting damage to the U.S. oil sector eased after the storm weakened before hitting the Louisiana coast.

Gustav -- which forced more than a quarter of the United States' refining capacity to shut down or cut processing rates -- weakened to a Category 1 storm after roaring ashore near Port Fourchon, Louisiana, a key logistical port that supports 75 percent of Gulf of Mexico drilling operations.

For a graph on the projected path of Gustav, please see: here

U.S. crude fell $4.06 in electronic trading to $111.40 a barrel by 9:30 p.m. as markets discounted the potential damage from the storm, which had earlier been forecast to hit the United States as a Category 4 storm. London Brent settled down $4.64 at $109.41.

"It looks like Gustav is not going to be as strong a storm as the market had feared," said Phil Flynn, analyst at Alaron Trading in Chicago.

All of the 1.3 million barrels per day of oil production capacity in the U.S. Gulf of Mexico was shut as of Monday morning, according to the U.S. government.

On shore, some 13 oil refineries representing about 15 percent of the nation's fuel production capacity were shut, according to company officials, trade sources and a report from the U.S. Department of Energy. Another 10 refineries reduced production rates due to the hurricane.

The Louisiana Offshore Oil Port, the only U.S. port capable of offloading the biggest oil tankers, also halted all operations due to high winds and waves.