Oil rises on worries Gustav may strengthen

[August 28, 2008]  OKLAHOMA CITY (AP) -- Oil prices rose above $119 a barrel Thursday on fears that Tropical Storm Gustav could strengthen on its way toward crude and natural gas rigs in the Gulf of Mexico and refineries in the Gulf area.

Royal Dutch Shell PLC said it is evacuating some 300 workers from offshore Gulf rigs, while BP PLC was also removing personnel from the region that is home to about a quarter of U.S. crude production and much of its natural gas.

Though it was too soon to know where the storm would hit, some models showed Gustav taking a path toward Louisiana and other Gulf states devastated by Hurricanes Katrina and Rita three years ago.

One weather research firm predicted as much as 80 percent of the Gulf's oil and gas production could be shut down as a precaution if Gustav enters the region as a major storm.

By afternoon in Europe, light, sweet crude for October delivery was up $1.41 at $119.56 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.88 to settle at $118.15 a barrel on Wednesday.

Analysts said trading was thinner than usual ahead of the long weekend in the United States celebrating Labor Day.

"Oil markets are waiting for Gustav and ... waiting to go on holiday," said Olivier Jakob of Petromatrix in Switzerland.

In the U.S., Louisiana Gov. Bobby Jindal declared a state of emergency and activated the National Guard in advance of storm Gustav. Jindal said Wednesday 3,000 National Guard troops would be activated and deployed a day in advance of the storm's expected landfall. An additional 2,000 troops could be called up to duty.

Gustav formed Monday and roared ashore Haiti Tuesday as a Category 1 hurricane. The storm triggered flooding and landslides that killed 23 people in the Caribbean. It weakened into a tropical storm, though it is likely to grow stronger in the coming days by drawing energy from warm open water.

The tropical storm was centered about 80 miles east-northeast of Kingston, Jamaica, and moving toward the west-southwest near 8 mph.

In 2005, Katrina and Rita destroyed 109 oil platforms and five drilling rigs. Gustav is the first storm of the 2008 Atlantic hurricane season to pose a serious threat to the more than 4,000 oil and gas installations in the Gulf.

Oil 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 rose to $1.4763 while the dollar fell to 109.13 yen.

In other Nymex trading, heating oil futures rose 2.77 cents to $3.2894 a gallon, while gasoline prices gained 1.03 cents to $3.0775 a gallon. Natural gas futures added 17.4 cents to $8.872 per 1,000 cubic feet.

In London, October Brent crude rose $1.27 to $117.49 a barrel on the ICE Futures exchange.

[Associated Press; By PABLO GORONDI]

Associated Press writers Alex Kennedy in Singapore and Jonathan M. Katz in Port-au-Prince, Haiti, contributed to this report.

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