Published: August 27, 2008 03:18 pm            

WEDNESDAY: Oil ends higher as Gustav spins toward Gulf (3:18 p.m.)

NEW YORK (AP) — Oil prices settled above $118 a barrel Wednesday as Tropical Storm Gustav spun toward the Gulf of Mexico on a possible collision course with offshore oil and gas platforms.

Light, sweet crude for October delivery rose $1.88 to settle at $118.15 a barrel on the New York Mercantile Exchange after earlier spiking as high as $119.63. The contract has risen for three straight days as fears over Gustav at least temporarily halt crude’s steep, monthlong slide from July’s record price above $145 a barrel.

Royal Dutch Shell PLC and BP PLC said they have begun evacuating some workers from offshore rigs scattered throughout the Gulf, 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 in a double blow that sent energy prices soaring.

One business 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.

“A bad storm churning in the Gulf could be a nightmare scenario. We might see oil prices spike $5 to $8 if it really rips into platforms,” said Phil Flynn, analyst at Alaron Trading Corp. in Chicago.

Gustav struck Haiti on Tuesday as a hurricane, pummeling the impoverished country with 90 mph winds and heavy rain before moving toward Cuba. At least 11 people were killed in Haiti and the Dominican Republic. Gustav was later downgraded to a tropical storm but was expected to regain strength, possibly becoming a dangerous Category 3 storm by next week, forecasters said.

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.

“Anticipate at least an 80 percent shut-in of the energy production region for environmental and safety purposes,” weather research firm Planalytics said in a report.

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.

        

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