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.

Ida had been listed as a Category 1 hurricane until midmorning, a storm with the ability to take 1.3 million barrels of crude 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 and it appeared to be heading east of the most crowded region in the gulf as far as energy production goes.

Weather Insight LP is expecting 700,000 barrels per day of crude oil production to be shut in, and 3 billion cubic feet per day of natural gas production to be taken off line until about Wednesday.

Given the huge surplus in oil, natural gas and gasoline in storage, the reaction on the New York Mercantile Exchange where energy futures are traded appeared to be muted.

In fact, crude prices appeared more influenced by the dollar, rising quickly as the U.S. currency weakened against the euro. When the dollar slipped, crude prices edged higher Monday.

Investors holding euros or other strong currencies can buy more dollar-based crude when the U.S. currency falls, and that has sent prices higher throughout the year.

Ida, as a threat to oil and gas production, appeared to fade by midday.

The latest storm track projection showed Ida brushing near Louisiana and Mississippi, then making landfall early Tuesday near Mobile, Ala, before continuing across north Florida.

Benchmark crude for December delivery on Monday gained 3 percent, or $2.35, to $79.78 a barrel on the New York Mercantile Exchange.

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 supplies are 7.62 percent higher than a year ago and gasoline in storage is up 7 percent, according to energy consultancy Cameron Hanover.

The average price for a gallon of regular gasoline fell a half penny overnight to $2.664, according to auto club AAA, Wright Express and Oil Price Information Service. That's 18.8 cents more than a month ago, and 40.5 cents more than gas cost at this time last year.

The Energy Department releases its figures on retail gas prices later Monday.

In other Nymex trading, heating oil rose 6.7 cents to $2.0706 a gallon. Gasoline for December delivery gained 7 cents to $9951 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 ROSE $2.13 to $78 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.