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Oil Prices Dip After Hurricane Isaac Weakens

After the country braced for the worst outcome, Hurricane Isaac spared the oil industry from costly damage, and oil prices erased earlier gains.

Isaac lost intensity since making landfall Tuesday night, taking the pressure off crude. Benchmark oil fell 87 cents Thursday to finish trading at $94.62 in New York.

Oil traders this week geared up for the impact from Hurricane Isaac-related supply disruptions as refineries along the Gulf Coast either slashed operations or completely shut down, and key import terminals were closed.

As the powerful storm grew closer to shore Tuesday, oil production in the U.S. Gulf of Mexico was nearly completely idled.

According to the U.S. Bureau of Safety and Environmental Enforcement, which oversees offshore oil and gas operations, an estimated 1.3 million barrels a day of crude, 93% of the oil production in the Gulf's federal waters was offline as a result of Isaac. The region's natural gas output was slashed by nearly two-thirds.

The agency said 509 production platforms were evacuated, or 85% of manned platforms in the Gulf of Mexico. Workers have also been pulled from 50 drilling rigs, or 66% of the total.

Luckily Hurricane Isaac spared the southern coast of costly oil rig damage. It was downgraded Wednesday to a tropical storm, relaxing pressure to dip into oil reserves to combat higher prices.

Hurricane Isaac Aftermath

Traders are waiting to see how much and for how long Isaac will affect production in the Gulf.

"We have to wait and see. A lot of refinery capacity was taken down and the key is going to be how the restart goes," Andrew Lebow, senior vice president of energy derivatives at Jefferies Bache LLC told the Associated Press.

Refineries pepper the Louisiana and Mississippi coasts. Roughly a quarter of U.S. oil production takes place in the region and the area comprises almost one-fifth of the country's capacity to convert crude oil into diesel, gasoline and other fuels.

Imports to the Gulf have also been curtailed, further pressuring oil prices. In order to make up for lost production, oil producers will be forced to tap inventories, Price Futures analysts Phil Flynn told the AP.

Prices at the pump have risen in anticipation of Isaac and the storm's aftermath. AAA reports the national average for a gallon of gasoline rose 4 cents from a week ago to an average $3.756 per gallon.

Steeper increases have been tallied in states in Isaac's immediate path. Feeling the most pain at the pumps are consumers in Mississippi, Alabama, Florida and Louisiana.

Using Oil Reserves to Fight Higher Prices

The White House reported Tuesday that tapping strategic oil reserves was an option to calm concerns over supply disruptions.

"The option has been on the table for some time, and remains on the table, but we have no announcement to make today," White House spokesman Jay Carney told reporters Tuesday as he traveled with U.S. President Barack Obama to Iowa.

The Obama administration earnestly mulled opening the spigot of the Strategic Petroleum Reserve earlier this year as global oil production disturbances pushed oil prices higher, but following a decline in prices, the plan was shelved.

But in early August, Reuters reported that the White House was revisiting those plans, and energy experts believed Hurricane Isaac would push them into action.

Looks like again that contingency plan was avoided.

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