Oil: Prices jump amid rising storm

Oil rose a dollar on Wednesday as a tropical storm strengthened and headed toward the Gulf of Mexico, threatening US oil and gas rigs still recovering from last year's devastating hurricanes.

Concern about the storm's effect on energy supplies to the world's largest consumer came as US data showed crude inventories fell more than analysts had expected last week due to a slow down in foreign imports.

London ICE Brent crude rose US$1.00 to US$76.89 a barrel by 1820 GMT, bringing within striking distance of its July record of US$78.18. US light crude rose 90 cents to US$75.81 a barrel.

Brent is at a rare premium to US oil because European markets are more directly affected by real and feared supply disruptions in Nigeria, Russia and the Middle East.

Tropical Storm Chris intensified over the Caribbean and could become the year's first hurricane by Thursday, the Miami-based National Hurricane Center said. The storm's forecast path takes it into the Gulf early on Monday.

Hurricanes last year shut in a quarter of US crude and fuel output and sent oil to record highs. Around 12 per cent of the US Gulf of Mexico's 1.5 million barrels per day (bpd) oil output is still offline.

"There is a little bit of excitement on the market due to the tropical storm," said Chip Hodge, Managing Director at John Hancock Financial Services in Boston.

US government data released on Wednesday showed crude oil stocks fell 1.8 million barrels last week, while petrol inventories fell 100,000 barrels last week.

Demand growth from drivers on summer vacation stayed strong, despite high prices at the pump. Over the past four weeks, US motorists have consumed 1.6 per cent more petrol than during the same period a year ago.

The US consumes around 40 per cent of the world's entire supply of petrol.

"I thought we'd see (petrol) demand down, but it remains tenacious," said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois.

Another attack on Iraq's crude export pipeline to Turkey on Monday, continued fighting between Israel and Hizbollah and Iran's nuclear stand-off with the West all supported prices.

Hizbollah guerrillas fired more rockets into Israel on Wednesday than any previous day of the 22-day-old war. nL01338765

Concerns over Iran persisted as President Mahmoud Ahmadinejad insisted on the country's right to produce nuclear fuel, despite a UN resolution demanding Tehran suspends its nuclear activities by Aug. 31 or face the threat of sanctions.

US Energy Secretary Bodman said Wednesday that oil prices would move higher if exports from Iran were cut, but he reiterated that the world's consumer nations are prepared to deal with such a cutoff by using their strategic oil stocks.

- REUTERS