Storm Gustav shutting oil output across Gulf

By Erwin Seba

HOUSTON (Reuters) - Oil and natural gas companies shut production across the Gulf of Mexico on Friday as they moved workers out of the path of Tropical Storm Gustav ahead of what could be the worst hurricane to strike the nation's offshore oil patch since 2005.

Tropical Storm Gustav was expected to strengthen to a powerful Category 3 hurricane over the weekend before tearing into offshore production areas early next week.

With about a quarter of U.S. oil output and 15 percent of natural gas production in Gustav's path, U.S. crude oil shot up $3 early Friday to above $118 per barrel as traders eyed possible supply disruption.

As of Friday, 6.62 percent of Gulf oil production and 1.84 percent of natural gas production were shut in due to Gustav, the U.S. Minerals Management Service said.

The losses from Hurricanes Katrina and Rita in 2005, combined with delays from bringing on-line large projects like BP Plc's Thunder Horse, have produced "a multi-year, and now likely irreversible decline in oil production from the region," wrote CIBC World Markets Chief Economist Jeff Rubin in a report.

While the place on the Louisiana or Texas coasts where Gustav would make landfall was unclear to forecasters on Friday, analysts said energy prices were sure to rise.

"With both oil and gasoline inventories much lower than when Katrina and Rita hit, the price consequences could be even worse this time," Rubin wrote.

Offshore operators fired off a string of notices that they were shutting down offshore platforms. Shell Oil Co, the U.S. Gulf's largest producer, began shutting down production at some platforms on Thursday.