Oil prices above $79 on gulf storm, weaker dollar

Oil and gasoline futures rose Monday as a tropical storm heading into the Gulf of Mexico and the U.S. dollar both weakened.

Benchmark crude for December delivery on Monday gained $1.85 to $79.28 a barrel on the New York Mercantile Exchange.

Ida had been listed as a Category 1 hurricane until midmorning, a storm that can take 1.3 million barrels off the market.

Yet the U.S. National Hurricane Center downgraded Ida to a tropical storm once its top sustained winds fell close to 70 mph (112 kph) and it appeared to be heading east of the most crowded region in the gulf as far as energy production goes.

There are also huge surpluses of crude, gasoline in distillates because of the recession, meaning the reaction to the storm was muted as far as energy prices.

Ida was the first Atlantic hurricane to approach the United States this year.

The latest storm track projection showed Ida brushing near Louisiana and Mississippi, then making landfall overnight near Alabama before continuing across north Florida.

Since hurricanes Gustav and Ike raked the gulf last year, there have been no major threats to the energy complex and demand for crude has left the country well supplied.

Crude oil stocks are 23.8 million barrels, or 7.62 percent, higher than a year ago. Gasoline stocks are up 13.6 million barrels, or 7 percent, and distillate stocks are up 39.8 million barrels, or 31.2 percent, higher than a year ago, according to energy consultancy Cameron Hanover.

The dollar, however, continues to fall and helped to push oil prices higher to start the week.

Investors holding euros or other strong currencies can buy more dollar-based crude, and that has sent prices higher throughout the year. Oil rose to $82 last month, its 2009 high, from $32 in December.

"At this point it seem unlikely that there will be any major damage to the facilities in the Gulf, yet the market has to be cautious," said PFGBest analyst Phil Flynn. "It is hard to determine how much of the rally in oil is Ida related and how much is it is dollar related."

In other Nymex trading, heating oil rose 4.8 cents to $2.0495 a gallon. Gasoline for December delivery gained 4.95 cents to $1.9738 a gallon. Natural gas for December delivery lost 1.8 cents to $4.577 per 1,000 cubic feet.

In London, Brent crude for December delivery fell $1.50 to $77.37 on the ICE Futures exchange.

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Associated Press Writers Alex Kennedy in Singapore and Pablo Gorondi in Budapest, Hungary, and Becky Bohrer in New Orleans contributed to this report.