Oil falls as U.S. recovers

This by no means let's the oil companies or this administration off the hook for the terrible way they've handled energy consumption and production in this country but it's a small step in the right direction. As somebody who spends many hours driving for a living, I for one am a little thankful.

Here's the story:

il prices fell 2.4 percent on Tuesday as the U.S. energy industry showed signs of recovery in the wake of Hurricane Katrina and industrialized countries prepared to tap emergency supplies to avert a crunch.

U.S. crude settled down $1.61 to $65.96 a barrel -- well below last week's peak $70.85 -- while London Brent was off 18 cents at $64.67.

Hurricane Katrina slammed into the Gulf Coast early last week, shutting down nearly all U.S. offshore crude oil production and paralyzing more than 10 percent of refining capacity in the world's biggest fuel consumer.

But the industry's desperate push to recover has begun to pay dividends, as nearly half of the refineries fully or partially closed by the storm returned to service and offshore operators made strides to restore production.

"We are starting to see signs of recovery after Hurricane Katrina ... It looks like the worst is over," said Phil Flynn, analyst at Alaron Trading.

Dealers said additional supply from the world's emergency stockpiles would also keep prices under pressure.

The United States began an auction on Tuesday for crude from national reserves for refiners struggling for feedstock after Katrina shut down most Gulf of Mexico production and closed major pipelines.

This comes as part of the International Energy Agency's total release of 2 million barrels per day (bpd) over the next 30 days, the first time the IEA has tapped its members' 1.5 billion barrel government stocks since 1991.

It is still not clear how much of the IEA release will comprise oil products such as gasoline, coming as U.S. retail price increases worry motorists and businesses.

"The release of strategic reserves contains a very large component of unneeded crude oil, and does little to directly impact on the actual supply gap of U.S. oil products," said a report by Barclays Capital.

"We are now putting the expected cumulative loss of U.S. gasoline output at about 60 million barrels."

Continued