LONDON: Oil rose more than $1 to reach $116 a barrel on Tuesday, bouncing off lows as concerns arose about possible disruption to US offshore oil and gas output from a strengthening Hurricane Gustav. The US National Hurricane Center said Gustav, a category one hurricane, had strengthened slightly in the central Caribbean as it churned toward southwestern Haiti. Weather models showed it either heading in a westerly direction toward Mexico s Yucatan Peninsula or steering northwest and moving into the central Gulf of Mexico by early Sunday, to potentially disrupt offshore oil and gas production. US crude, which fell more than $2 earlier in the session, was 77 cents higher at $115.88 by 1305 GMT. London Brent crude rose 40 cents to $114.43. Earlier, oil fell as the dollar hit a six-month high against the euro on Tuesday after weak German data highlighted a flagging euro zone economy. Dollar strength can limit the appeal of oil and commodities as an inflation hedge. Short term trading on oil should now be dominated this week by tracking Gustav, said Olivier Jakob, oil analyst at Petromatrix in Zug, Switzerland. Germany said its gross domestic product (GDP) contracted by 0.5 percentage points on the quarter in the April-June period, the first contraction since 2004 and raising concerns Europe s biggest economy could be headed for a recession. Oil has fallen sharply from a record high of $147.27 reached on July 11 in part due to evidence of a global slowdown in energy demand. It remains up about 15 percent so far this year. Investors were also keeping an eye on tension between the West and Russia over Georgia. Russia on Tuesday recognized two rebel regions of Georgia - South Ossetia and Abkhazia - as independent states, defying pressure from the United States and other western powers. While the conflict in Georgia has led to some disruption in Azeri oil shipments through Georgia, analysts said this latest development was having little influence on oil prices so far. Energy markets have not yet focused on what this latest escalation could mean for a potential disruption in energy supplies, said Edward Meir, analyst at MF Global, in a report. Until we get better clarity on this latter issue, we expect the price reverberations from this situation to be relatively contained. -Additional reporting by Osamu Tsukimori and James Topham in Tokyo and Alex Lawler in London
