Oil falls as U.S. and IEA ready emergency stockpiles

NEW YORK (Reuters) - Oil prices fell more than $2 on Thursday after the U.S. government and the International Energy Agency pledged to release emergency stockpiles if Tropical Storm Gustav disrupted U.S. oil production.

U.S. crude settled down $2.56 at $115.59 barrel, after falling as low as $114.08 earlier. London Brent crude traded down $2.05 to settle at $114.17 a barrel.

Gustav was forecast to strengthen into a hurricane as it neared the Gulf of Mexico, home to a quarter of U.S. crude oil production and 15 percent of its natural gas output.

The storm, packing winds of 70 mph (110 kph), was bearing down on Kingston, Jamaica, at midday Thursday.

Energy companies operating in the Gulf began shutting production and evacuating personnel ahead of the storm, the biggest threat to the region's oil infrastructure since hurricanes Katrina and Rita in 2005.

The Louisiana Offshore Oil Port -- the nation's only deepwater oil port and a major conduit for U.S. crude imports -- expected to stop offloading tankers by this weekend.

The U.S. Department of Energy said Thursday it was ready to tap the nation's Strategic Petroleum Reserve in the event Gustav caused a severe production disruption, echoing earlier comments from the IEA.

"We always stand ready to bring additional relief to the market, if it's necessary," Aad van Bohemen, head of the emergency planning and preparation division at the IEA, told Reuters.

As Gustav churned through the Caribbean, Tropical Storm Hanna formed in the Atlantic Ocean with 40 mph (65 kph) winds and a track that could take it toward the Bahamas and Florida next week, the U.S. National Hurricane Center said.