Oil rises as Gustav enters Gulf

Oil rises as Gustav enters Gulf
Investors worry Tropical Storm Gustav could damage oil facilities in the Gulf of Mexico.


NEW YORK (CNNMoney.com) -- Oil prices rose Wednesday as Tropical Storm Gustav entered the Gulf of Mexico and threatened U.S. oil facilities.

U.S. crude rose $1.38 to $117.65 a barrel in electronic trading as the National Hurricane Center projected Gustav could resume hurricane status and touch the Louisiana coast by Monday.

Gustav lost strength and became a tropical storm as it passed over Haiti. However, the Hurricane Center cautioned that Gustav could gain steam on Thursday as it moves away from the island nation.

Oil platforms in and around the Gulf of Mexico account for more than a quarter of U.S. oil production. They are also vulnerable to extreme storms such as hurricanes.

Hurricanes Katrina and Rita in 2005, both of which reached Category 5 strength before making landfall, destroyed 113 offshore oil and natural gas platforms and damaged 457 pipelines, according to the government.

Oil giant Royal Dutch Shell PLC (RDS) said it could begin evacuating workers on Wednesday.

Dollar: Oil also got a boost as the dollar weakened against the 15-nation euro.

Oil is traded in U.S. dollars. So when the dollar loses strength, oil becomes cheaper for foreign investors. Many also purchase oil and other commodities as a hedge against inflation.

The dollar also fell in value against other major currencies after two reports released Tuesday showed continued weakness in the housing sector.

Inventory: Investors were also looking ahead to the Energy Department's weekly report on petroleum inventories scheduled for 10:35 a.m. ET.

Economists expect the government to report a 1.5 million barrel increase in crude stockpiles, and a decline of 2.8 million barrels in gasoline supplies, according to a survey from Platts, the energy research arm of McGraw Hill Cos.

CNN