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Oil rises above $118 as Gustav spins toward Gulf

Oil rises above $118 as Gustav spins toward Gulf

NEW YORK (AP) — Oil prices shot up above $118 a barrel Wednesday, rising for a third day as Tropical Storm Gustav spun toward the Gulf of Mexico and threatened to collide with offshore oil and gas platforms.

Light, sweet crude for October delivery rose $2.11 to $118.38 a barrel in morning trading on the New York Mercantile Exchange, after earlier rising as high as $119.63. The contract added $1.16 on Tuesday to settle at $116.27 a barrel.

Gustav struck Haiti on Tuesday as a hurricane, pummeling the impoverished country with 90 mph winds and heavy rain before moving toward Cuba. Gustav was later downgraded to a tropical storm but was expected to strengthen later this week, possibly becoming a Category 3 storm; forecasts show it could take a path toward a swath of the Gulf dotted with oil and natural gas platforms.

Royal Dutch Shell PLC said it has begun evacuating some 300 workers from offshore rigs as a precaution.

“It looks like it could be a big one. Unless the path changes drastically, this could have an impact on production and the market is being forced higher,” said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill.

A powerful storm in the Gulf could force shutdowns on the offshore rigs that account for about a quarter of U.S. crude production and much of its natural gas. Royal Dutch Shell PLC said it could begin evacuating workers as soon as Wednesday.

Ritterbusch said a potentially bigger threat from the storm was to oil refineries scattered along the Gulf Coast from Texas to Louisiana. Any shutdown in refining there would likely lead to a spike in retail gas prices, which have fallen steadily for more than a month as crude prices have eased from record levels.

“There’s a strong chance that by Friday we could see some fairly significant pump price increases,” Ritterbusch said. “Crude can be replaced and brought in via tanker, but bringing a damaged refinery back up again can take a long time, as we saw with Katrina and Rita.”

Prices were also supported by a weaker dollar, which boosted the demand for oil among investors who buy commodities as a hedge against inflation.

The euro recovered ground against the dollar Wednesday after hitting a six-month low the previous day. It bought $1.4714 in New York trading, up from $1.4650 Tuesday.

But evidence of falling U.S. oil demand is keeping a lid on oil prices. The U.S. Energy Department’s Energy Information Administration said Tuesday that year-over-year oil demand was down 5.6 percent in June.

“We’re getting some pretty powerful data that suggests slower growth and higher gasoline prices have really crimped oil demand in the U.S,” said David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney.

Investors were waiting for an EIA report on U.S. oil stocks for the week ended Aug. 21 later in the session. The petroleum supply report was expected to show gasoline inventories fell by 2.8 million barrels, according to the average of analysts’ estimates in a survey by energy information provider Platts.

The Platts survey also showed that analysts projected oil stocks rose 1.5 million barrels and distillates went up 900,000 million barrels during last week.

In other Nymex trading, heating oil futures rose 8.28 cents to $3.2927 a gallon, while gasoline prices gained 10.48 cents to $3.0745 a gallon. Natural gas futures increased 34.9 cents to $8.627 per 1,000 cubic feet.

In London, October Brent crude added $2.08 to $116.71 a barrel.

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