Stronger Dolly forces Texas refining cuts

HOUSTON (Reuters) - A stronger Hurricane Dolly slowly crossed the Texas coast on Wednesday, cutting production at some oil refineries but missing offshore oil and natural gas production facilities in the Gulf of Mexico .

Valero Energy Corp said the loss of crude supply, because tankers could not move through the Houston Ship Channel, led the company to reduce production between 10 percent and 20 percent at its refineries in Houston and Port Arthur, Texas.

The port serving the major refining centre of Corpus Christi, Texas, was also closed to ship traffic, although refineries served by that waterway said operations were continuing.

U.S. crude oil futures were unaffected by the Category 2 hurricane packing winds of 100 miles per hour (160 kph). Oil prices fell slightly, extending a big two-week decline, after a U.S. government report reinforced concerns that high prices and economic turmoil were slashing into energy demand.

"Dolly has not deviated much from its forecast path," said Olivier Jakob, an oil analyst at Petromatrix. "Its price impact potential should now be discounted."

Oil companies working in the U.S. Gulf of Mexico had shut 5 percent of oil and natural gas output, after evacuating crews by Tuesday, but those outages were expected to be short lived.

The companies said they were waiting for most of Dolly to cross the coastline before returning workers to platforms.

Valero's Houston refinery processes 130,000 barrels per day while the Port Arthur refinery handles 295,000 bpd.

On Tuesday, the U.S. Minerals Management Service, which oversees offshore producers, said about 5 percent of Gulf oil and natural gas production had been shut.