Oil jumps nearly $2 to $108 on hurricane threat

Perth: Oil rose nearly $2 to $108 a barrel on Monday, rebounding from a five-month low on worries that Hurricane Ike would tear through the Gulf of Mexico, and on hopes that a U.S. bailout of its top mortgage lenders would help temper an economic downturn.

Traders were also awaiting a production decision from the Organisation of the Petroleum Exporting Countries (OPEC), with expectations that ministers would leave agreed output targets unchanged at a meeting on Tuesday.

U.S. light crude for October delivery rose $1.75 to $107.98 by 0655 GMT, after climbing as much as $2.89 in early trade.

The gains snapped a losing streak more than a week long that knocked prices to their lowest since April after last week's Hurricane Gustav left most Gulf oil and gas facilities intact.

London Brent crude rose $1.39 to $105.48. Hurricane Ike weakened to a Category 3 hurricane as it bore down on Cuba on Sunday, but was expected to retain strength, entering the Gulf of Mexico as a severe Category 4 storm, a U.S. Federal Emergency Management Agency official said.

It may threaten Gulf energy rigs that account for a quarter of U.S. oil output and 15 percent of natural gas production.

Nearly 80 percent of the Gulf's oil production remains shut in following Hurricane Gustav, and Ike's approach has forced Shell Oil Co. to stop returning workers to its platforms.

"There is a concern these storms could impact refineries and production more significantly than Gustav did and we might see more buying when London opens as investors cover themselves in case of damage," said Gerard Rigby, analyst at Fuel First Consulting in Sydney.

He said the U.S. government's weekend move to bail out mortgage finance companies Fannie Mae and Freddie Mac also lent support, raising hopes that the latest effort to prop up the ailing housing market would help quell the credit market crisis that has pushed economies toward recession.

In Vienna, oil ministers appeared likely to stay the course on production, although some of the more hawkish members, such as Venezuela, may talk about possible curbs, Rigby said. Iranian Oil Minister Gholamhossein Nozari told reporters on Monday he considered the oil market oversupplied, but declined to say what action, if any, the group may take.

OPEC is estimated to be pumping 790,000 barrels per day (bpd) above the collective ceiling of 29.67 million bpd for its 12 members with output limits, leaving some room for manoeuvre before it needs to consider any formal cut.