Aug 27. In global petroleum market headlines, oil prices jumped Tuesday as Hurricane Gustav struck Haiti, raising concerns that the storm could slam into major oil operations in the Gulf of Mexico. After dropping as low as USD 112.36 per barrel in overnight trading, light, sweet crude for October delivery ended the day up USD 1.16 to settle at USD 116.27 a barrel on NYMEX. Brent crude on London's ICE futures exchange rose 60 cents to settle at USD 114.63 a barrel. However, the increase was tempered by a stronger dollar and a report from the Energy Department showing even slower fuel demand than many traders thought. If Gustav continues along a path toward the Gulf, it could mean higher prices ahead of Labor Day weekend. A strong storm could evacuate platforms. Tropical Storm Gustav became a Category 1 hurricane early Tuesday as it approached Haiti's southern coast, then slammed into the island nation later in the day. The Miami-based National Hurricane Center said Gustav could gather strength over the Gulf's warmer-than-usual waters. Another weather forecaster, Accuweather.com, said that if Gustav passes through the Yucatan Channel into the Gulf, the storm could intensify into a Category 4 or 5 hurricane. A Category 5 hurricane is defined as having sustained winds over 155 miles per hour; hurricanes Rita and Katrina were Category 5 hurricanes, and shuttered most of the Gulf region's crude oil and natural gas production in the late summer and early fall of 2005. The Gulf of Mexico's offshore crude production accounts for about 25% of total U.S. crude production, according to the Energy Department's Energy Information Administration. The region also produces a substantial portion of the nation's natural gas. Yesterday market watchers also questioned whether rising tensions with the West over the breakaway Georgian territories of Abkhazia and South Ossetia would increase the risk of an interruption of oil and natural gas flows to Europe — which relies heavily on Russian energy supplies. As a matter of fact, the signing of a decree recognizing the breakaway Georgian regions by president Dmitry Medvedev was greeted with a litany of condemnation in the West and a ratcheting up of political and military rhetoric in Moscow. This conflict could keep a ceiling on oil prices until the conflict is settled. Meanwhile, the dollar's advance against the euro, yen and pound had a dampening effect on oil's jump. In our opinion, energy prices are inextricably tied to the value of the dollar and oil would probably have been up by USD 3 or USD 4 yesterday if the dollar had remained unchanged against other major currencies. Prices also wavered after the EIA released a monthly report showing that y-o-y oil demand was down 5.6% in June, as U.S. drivers pared back their gasoline use. Moving forward, we expect prices to be driven by the dollar, political events in Russia and Hurricane Gustav in the short-term with WTI and Brent consolidating in the range of USD 112 – 117.