Oil jumps 3 percent on Ida, equities

By Edward McAllister

NEW YORK (Reuters) - Oil rose 3 percent toward $80 a barrel on Monday after Tropical Storm Ida forced the shut in of U.S. oil and gas production, helping to support prices.

U.S. crude for December delivery rose $2.34 to $79.77 a barrel by 1:50 p.m. EST. London Brent crude gained $2.21 to $78.08.

Ida, the first real storm threat of the 2009 season, was downgraded from a hurricane on Monday, but production remained shut in as producers waited for the storm to pass over the Gulf.

"Crude is up on the weak dollar and the impact of Tropical Storm Ida, overshadowing some bearish news of the Saudis raising supplies available and China raising fuel prices," said Phil Flynn, analyst at PFGBest Research in Chicago.

Crude has been bolstered by stronger equities and a weaker dollar in recent months, as investors look to wider macro economic data for a hint of economic recovery and a rebound in energy demand.

U.S. stocks jumped, extending last week's gains, on renewed risk-taking sentiment after the Group of 20 pledged to keep economic stimulus in place until a recovery was assured. .N

The news also sent the dollar down across the board, helping bolster crude prices. A weak dollar makes dollar-denominated commodities like crude cheaper for holders of other currencies and helps support prices.

"I think it's more buy on the rumor, sell on the fact. It does not seem as if (Ida is) strong enough to create structural damage," said Olivier Jakob of Petromatrix.

"Nothing fundamental has really changed, but you buy because of the dollar and equities."

Oil prices have rallied from a low of below $33 a barrel last December, in line with a rally sustained for much of the year on equities.

PRICES VULNERABLE

For oil prices, the market's failure to sustain the strength that took it to a year-high of $82 a barrel in October was seen as bearish, and speculators have begun to unwind long positions.

The latest data from the Commodity Futures Trading Commission on Friday showed money managers had reduced their net long crude positions on the New York Mercantile Exchange. Speculative length is still historically high and analysts said further selling was likely.

Fuel inventories are brimming, with U.S. distillate stocks, which include heating oil and diesel, at their highest levels in more than a quarter of a century.

Potentially adding to the oil surplus, Saudi Arabia, the world's top oil exporter, has increased December supplies to large companies, and one Asian customer is expected to receive full contract volume.