Gustav weakened to a Category 1 hurricane as it approached the Louisiana cities of New Iberia and Lafayette with maximum wind speeds of 90 mph , the U.S. National Hurricane Center said Monday.
The storm was weaker than had been feared. But waves splashed over floodwalls containing the New Orleans Industrial Canal, triggering a tense watch over the barrier system that failed three years ago, flooding 80 percent of the city and stranding thousands of people.
Water rose in the Fifth District, west of the canal, and troops prepared to evacuate residents who stayed behind. But the U.S. Army Corps of Engineers said the levees had not yet been breached.
Oil and natural gas prices plunged as Gustav weakened to a Category 2 hurricane with 110 mph winds shortly before making landfall, easing fears of serious supply disruptions that had put energy markets on edge.
Oil companies had shut down nearly all production in the region, which normally pumps a quarter of U.S. oil output and 15 percent of its natural gas.
Nearly 2 million people fled the Gulf Coast as Gustav approached and only 10,000 were believed to have remained in New Orleans. More than 11 million residents in five U.S. states were threatened by Gustav.
New Orleans Mayor Ray Nagin cautioned residents against too much early optimism, expressing concern about the stability of the concrete and earthen flood barriers protecting the city.
Nagin was also worried about two Navy ships and a barge that were pinned against a wharf but could endanger the canal floodwalls if they got loose.
Assessing damage from Gustav. Watch video at left.
"We are nowhere near out of danger yet," Nagin said. "Those canals are full right now. I don't know if we are going to get any more water pushed in that direction but that's a big concern for me right now."
But the U.S. Army Corps of Engineers, which rebuilt the levees after Katrina, said water was just "sloshing" over the canal wall and expressed confidence in the flood barrier.
"The system is not inundated and it is not a breach," said Karen Durham-Aguilera of the Army Corps. "Right now we feel that we are not going to have a true inundation or overtopping problem," she said.
Hurricane Gustav also took center stage in U.S. politics. The Republicans were to open their convention on Monday to nominate presidential candidate John McCain with a bare-bones program stripped of the usual pomp and circumstance.
Gustav, a dangerous Category 4 hurricane a few days ago, hit shore near Cocodrie, Louisiana, about 70 miles southwest of New Orleans, as a Category 2 storm on the five-step Saffir-Simpson scale of hurricane intensity, one step below Katrina's strength when it made landfall.
Hours later, it was still a Category 2 but its winds had dropped to 105 mph as it moved inland.
About 287,000 customers had lost power in Louisiana, including 100,000 in New Orleans, utility Entergy said. Wind ripped through the city, knocking down trees, ripping off shop awnings and bowling trash cans through all but deserted streets.
"Gustav doesn't have no punch," pool builder Randall Dreher said, head bowed into the gale. "I went through Katrina and this is totally different. It's weak."
Natural gas futures dropped over 6 percent and oil fell about 4 percent Monday on expectations that the storm would largely spare production facilities in the Gulf of Mexico. Katrina and Hurricane Rita, which followed it three weeks later, wrecked more than 100 Gulf oil platforms.
The U.S. National Hurricane Center said Gustav was still likely to toss a dangerous storm surge of up to 14 feet of water ashore.
Hurricane Katrina brought a 28-foot storm surge that burst New Orleans levees on Aug. 29, 2005. The city degenerated into chaos as stranded storm victims waited days for government rescue and law and order collapsed.
Police and thousands of national guard troops patrolled the empty city and a curfew was in effect to deter looting.
Evacuees left signs behind defying Gustav and looters. A shop in the Garden District said "New Orleans: Proud to Swim Home" while a nearby home warned "Two dawgs and one ex-husband:Beware!"
Gustav had stirred uneasy comparisons to Katrina, the costliest hurricane in U.S. history, which killed some 1,500 people and caused over $80 billion in damage.
President Bush, who was heavily criticized for the slow Katrina relief efforts, canceled his appearance at the Republican convention and traveled to Texas to oversee emergency response efforts.
"This storm has yet to pass. It's a serious event," he said at a briefing in Austin.
McCain, facing Democrat Barack Obama in November's election, went to Mississippi on Sunday to survey preparations and ordered political speeches canceled on Monday for his nominating convention, apparently concerned that television images of a choreographed Republican celebration while the storm was hitting Louisiana would be seen as out of touch.