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NEW YORK: Oil prices reversed course and fell sharply on Thursday as traders discounted the impact of Tropical Storm Gustav as it churned toward the Gulf of Mexico's energy installations.
New York's main contract, light sweet crude for delivery in October, fell 2.56 dollars to close at 115.59 dollars per barrel.
In London, Brent North Sea crude for October shed 2.05 dollars to settle at 114.17 dollars.
Oil prices opened sharply higher as Gustav threatened to build into a hurricane as it headed toward the Gulf of Mexico.
"Gustav could become a hurricane before moving over Jamaica," the US-based National Hurricane Centre said.
Gustav, which struck Haiti and the Dominican Republic as a hurricane on Tuesday, could regain strength by Friday, the centre warned.
The Gulf of Mexico accounts for 26 percent of US crude production and 11 percent of natural gas output.
But prices eased back later in the session amid speculation about Gustav's eventual impact.
"The latest forecasts for Tropical Storm Gustav suggest a slightly lower chance of major disruptions in oil production," said Al Goldman, analyst at Wachovia Securities.
Mike Fitzpatrick at MF Global said that "even if the damage from the approaching storm is fractional it could still be significant" because of limited capacity.
"The environment of sparse capacity means that every barrel of oil lost to the marketplace will be felt, particularly as the northern hemisphere's winter is just around the corner," he said.
"Even if the storm veers to the west and south away from productive infrastructure in the Gulf, the outer bands which produce extraordinary rainfall amounts will put important refineries along the Texas coast in jeopardy of flooding."
Gustav was expected to enter the Gulf of Mexico over the weekend, then make landfall in Louisiana and Texas on Monday, according to the National Hurricane Centre.
The threat of Gustav raised grim memories of the 2005 hurricanes Katrina and Rita that damaged or destroyed about 165 oil platforms of the some 4,000 located in the Gulf.
Oil companies braced for the storm. British oil group BP and US rivals ConocoPhillips and Shell evacuated workers from their Gulf energy installations.
Shell said it was evacuating about 300 personnel, after removing almost 400 people on Wednesday.
"We expect to evacuate the remaining 600 personnel on Friday and Saturday," Shell said.
The oil market also tracked escalating tensions between Georgia and Russia, the world's biggest oil producer.
The United States, the largest energy consumer, is worried that in the wake of the Russian-Georgian conflict, US strategic interests in Ukraine and Azerbaijan - especially in oil - could be at serious risk.
The clearest sign of US concern is that Vice President Dick Cheney next week will travel to Georgia, Ukraine and Azerbaijan, analysts said. - AFP/de
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