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NEW YORK: Oil prices surged on Wednesday as Tropical Storm Gustav appeared headed for the Gulf of Mexico and its oil and gas installations.
New York's main contract, light sweet crude for delivery in October, advanced 1.88 dollars to close at 118.15 dollars a barrel.
In London, Brent North Sea crude for October rose 1.59 dollars to settle at 116.22 dollars.
Gustav could build back up to hurricane strength and move into the Gulf region by this weekend, according to the Miami-based National Hurricane Centre.
"Most models now show it is on a collision course for the Gulf of Mexico's productive regions. With memories of (Hurricane) Katrina still fresh in most participants' minds it is understandable that prices have broken sharply higher," said John Kilduff, analyst at MF Global.
The National Hurricane Centre's announcement sent a shudder through the market, pushing prices up more than three dollars in intraday trade.
The Gulf of Mexico accounts for 26 percent of the United States' crude production and 11 percent of natural gas output, according to data from the US Energy Information Administration.
In 2005, hurricanes Katrina and Rita damaged or destroyed about 165 oil platforms of the some 4,000 located in the Gulf.
Gustav had lashed the island of Hispaniola on Tuesday as a hurricane, leaving at least 22 people dead in Haiti and the Dominican Republic.
After losing strength, Gustav once again picked up momentum as it headed toward Cuba, where authorities ordered the evacuation of some 42,000 people as a precaution.
Energy giant Royal Dutch Shell said Wednesday it had begun "evacuating personnel not essential to producing and drilling operations in the Gulf."
ExxonMobil, in an afternoon statement, said that so far Gustav had had no impact on its operations and no personnel had been evacuated.
The market shrugged off the latest US weekly report on energy inventories.
The US Department of Energy said crude stockpiles had fallen by 100,000 barrels last week, instead of the 2.2-million-barrel increase forecast by most analysts.
Oil prices were also being supported by heightened tensions between Russia and the West after Moscow on Tuesday recognised the Georgian separatist regions of South Ossetia and Abkhazia as independent.
Russia recently overtook Saudi Arabia as the the biggest oil producer.
Traders also kept an eye on fresh violence in Nigeria.
Unidentified gunmen kidnapped an Israeli from his residence in Nigeria's oil hub of Port Harcourt, police said on Wednesday.
Nigerian police said no group has claimed responsibility for the abduction, the latest to hit the restive oil region in recent months. - AFP/de
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