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Oil rises to $117 on storm threat to US output

LONDON - Oil rose by more than $1 above $117 a barrel on Friday, as Tropical Storm Gustav was poised to enter the Gulf of Mexico, raising concerns about its impact on U.S. offshore oil and gas output.

Energy companies braced for Gustav, shutting down production and evacuating personnel from offshore rigs. The U.S. Gulf of Mexico is home to a quarter of U.S. crude oil production and 15 percent of its natural gas output.

Crude for October delivery rose $1.51 to $117.10 barrel by 1035 GMT, off earlier highs of $117.17, paring Thursday's loss of $2.56 when the authorities pledged to release emergency stockpiles if Gustav disrupts U.S. oil output.

London Brent crude rose $1.41 to $115.58 a barrel.

Tropical Storm Gustav is forecast to strengthen into a hurricane by Friday as it nears the Gulf of Mexico.

Forecasters said the storm could intensify rapidly and within 72 hours Gustav could become a Category 4 or 5 hurricane, the most severe on the hurricane intensity scale, making it the hardest to hit the heart of U.S. offshore production since the devastating hurricane season in 2005.

As Gustav churned through the Caribbean, Tropical Storm Hanna formed in the Atlantic Ocean, on a path that could threaten the Bahamas and Florida, the U.S. National Hurricane Center said.

Russian shipments

Meanwhile, electronic trading was relatively calm ahead of the U.S. Labour Day holiday on Monday, when NYMEX floor trading will be shut. Electronic trading on Globex will not be affected.

'We cannot advise going short into the weekend,' said Edward Meir at MF Global, adding that Thursday's late sell-off might have had more to do with traders exiting long oil positions than creating fresh short positions.

Oil received further support as Britain's Daily Telegraph newspaper reported 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.

Russia's second-largest oil producer LUKOIL denied that and the country's energy minister said Moscow was doing everything it could to ensure stable oil supplies to Europe and to keep its good name as an energy supplier.

Traders are also eyeing an OPEC meeting scheduled for Sept. 9 in Vienna that is expected to review the oil exporting group's output policy.

OPEC could cut output at a meeting in September but will most likely maintain current production levels, Venezuela's Oil Minister Rafael Ramirez said on Thursday.