Oil up slightly as Hurricane Ike threatens Gulf

By Richard Valdmanis

NEW YORK (Reuters) - U.S. oil prices rose slightly on Monday as Hurricane Ike took aim at the U.S. Gulf of Mexico's cluster of offshore rigs, most of which remained paralyzed in the wake of last week's Hurricane Gustav.

The one-two punch likely will carve deeply into U.S. energy inventories, as the source of a quarter of domestic crude and 15 percent of the United States' natural gas lies dormant for a fresh blow of high winds and waves.

U.S. crude futures settled up 11 cents at $106.34 a barrel after dipping to a five-month low of $104.70. London's Brent crude futures, trading at a steep discount to the U.S. benchmark, fell 65 cents to $103.44.

Gains in the U.S. oil market were tempered after the U.S. government's takeover of mortgage financiers Fannie Mae and Freddie Mac fueled a run up in the U.S. dollar.

A strong greenback tends to lower commodity prices by weakening the purchasing power of buyers using other currencies.

"The storm concerns appear to be overriding the dollar," said Tom Bentz, analyst at BNP Paribas in New York.

Energy companies Shell Oil (RDSa.L), Anadarko (APC.N) and others began evacuating workers ahead of Ike, which struck Cuba late Sunday on a track that could take it into the Gulf of Mexico Tuesday and into the Gulf Coast by the weekend.

The Gulf of Mexico's oil production already was mostly shut down due to the effects of Hurricane Gustav, which crossed through the Gulf of Mexico just over a week ago.

Some 79.4 percent of the 1.3 million barrels per day of normal oil output from the Gulf of Mexico remained shut as of Monday, along with 64.2 percent of its 7.4 billion cubic feet per day of natural gas output, the U.S. government reported on Sunday.

Onshore, three refineries with a combined capacity of 330,000 bpd, amounting to 1.8 pct of U.S. capacity, remained shut Monday in Gustav's wake -- reflecting a strong recovery from the peak when 15 refineries representing more than 15 percent of U.S. refining capacity were shut down.

OPEC ministers gathering in Vienna for their output policy meeting scheduled for Wednesday were expected to leave formal production targets unchanged due to the threat from the hurricanes.

For a graphic on Hurricane Ike, please double click on:

here

"I don't believe there is any possibility we will change production levels," Ecuador's Oil Minister Galo Chiriboga told reporters on Sunday.

Some ministers argued that the market was amply supplied following months of overproduction led by Saudi Arabia.