Oil spikes to $117 per barrel on storm fears

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Tokyo, August 29:: Oil rose more than $1 to $117 a barrel on Friday, as energy companies prepared for Tropical Storm Gustav to deliver what could be the hardest hit to the heart of US offshore production since the devastating 2005 hurricane season.

Crude for October delivery was rose $1.41 or 1.2 per cent to $117 a barrel by 0705 GMT, after rising as high as $117.15 earlier.

That pared Thursday's loss of $2.56, triggered by a pledge from the US government and the International Energy Agency to release emergency stockpiles if Tropical Storm Gustav disrupted US oil production.

London Brent crude rose $1.35 to $115.52 a barrel.

Tropical Storm Gustav was forecast to strengthen into a hurricane by Friday as it neared the Gulf of Mexico, home to a quarter of US crude oil production and 15 per cent of its natural gas output.

Forecasters said the storm could intensify rapidly and "it would be no surprise" if Gustav within 72 hours became a Category 4 or 5 hurricane, the most severe on the hurricane intensity scale.

Electronic trading was relatively calm ahead of the US Labour Day holiday on Monday, when NYMEX floor trading will be closed. Electronic trading on Globex will not be affected.

"Amid thin trading, it is a given never to find yourself in short positions," said Akira Kamiyama, derivatives trader at Mitsui & Co.

Oil companies were preparing platforms for the storm, expected to enter the Gulf as a major hurricane on Sunday and possibly reach catastrophic strength.

Shell Oil Co, the largest producer in the Gulf of Mexico, said on Thursday it expects to shut all of its Gulf of Mexico production over the next two days as it evacuates workers from offshore platforms.

Anadarko Petroleum Corp said it expects to shut all its production, including the Independence Hub, the largest offshore natural gas processing facility, by Sunday.

Forecaster Planalytics said any damage to offshore platforms would not be long lasting, after predicting on Wednesday that up to 85 per cent of the Gulf's oil and natural gas production could be shut in by Gustav.

Further support came after UK newspaper The Daily Telegraph reported on Friday that the Russian government had told at least one of its oil companies to prepare for a possible cut in shipments to Europe in days in response to threatened sanctions, citing a single unidentified source.