On its current trajectory, Gustav could also damage fuel refineries along the vulnerable Gulf Coast and push gasoline prices higher at the pump in time for Labor Day weekend.
Light, sweet crude for October delivery rose $1.88 to settle at $118.15 a barrel on the New York Mercantile Exchange after earlier spiking as high as $119.63. Crude has tacked more than $3 onto its price since Friday as worries over Gustav at least temporarily halt oil's steep, monthlong slide from July's record price above $147 a barrel.
Royal Dutch Shell PLC said it's evacuating some 300 workers from offshore Gulf rigs, while BP PLC was also removing personnel from the region that's home to about a quarter of U.S. crude production and much of its natural gas.
Though it was too soon to know where the storm would hit, some models showed Gustav taking a path toward Louisiana and other Gulf states devastated by Hurricanes Katrina and Rita three years ago in a double blow that sent energy prices soaring.
One business weather research firm predicted as much as 80 percent of the Gulf's oil and gas production could be shut down as a precaution if Gustav enters the region as a major storm.
"A bad storm churning in the Gulf could be a nightmare scenario. We might see oil prices spike $5 to $8 if it really rips into platforms," said Phil Flynn, analyst at Alaron Trading Corp. in Chicago.
The storm also boosted natural gas prices, which gained 11.6 cents to settle at $8.394 per 1,000 cubic feet.
Gustav struck Haiti on Tuesday as a hurricane, pummeling the impoverished country with 90 mph winds and heavy rain before moving on toward Cuba. At least 22 people were killed in Haiti and the Dominican Republic. Gustav was later downgraded to a tropical storm but was expected to regain strength, possibly becoming a dangerous Category 3 storm by next week, forecasters said.
Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill, said a big threat was to oil refineries dotting the Gulf Coast from Texas to Louisiana. A shutdown in refining there would likely lead to a sudden jump in retail gas prices, possibly before around Labor Day weekend when many Americans take to the road for end-of-summer vacations.
"There's a strong chance that by Friday we could see some fairly significant pump price increases," Ritterbusch said. "Crude can be replaced and brought in via tanker, but bringing a damaged refinery back up again can take a long time, as we saw with Katrina and Rita."
In 2005, Katrina and Rita destroyed 109 oil platforms and five drilling rigs. Gustav is the first storm of the 2008 Atlantic hurricane season to pose a serious threat to the more than 4,000 oil and gas installations in the Gulf.
"Anticipate at least an 80 percent shut-in of the energy production region for environmental and safety purposes," weather research firm Planalytics said in a report.
Oil prices were also supported by a weaker dollar, which boosted the demand for oil among investors who buy commodities as a hedge against inflation.
But evidence of falling U.S. oil demand is keeping oil prices in check. The U.S. Energy Department's Energy Information Administration said Tuesday that year-over-year oil demand was down 5.6 percent in June.
In another sign Americans are still driving less, U.S. retail gas prices shed half a penny overnight to a new national average of $3.667 for a gallon regular, according to auto club AAA, the Oil Price Information Service and Wright Express.
"We're getting some pretty powerful data that suggests slower growth and higher gasoline prices have really crimped oil demand in the U.S," said David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney.
Also Wednesday, the Energy Department's Energy Information Administration said in its weekly inventory report that crude stockpiles fell slightly by 100,000 barrels to 305.8 million barrels for the week ending Aug. 22.
That compared to the 1.5 million barrel increase analysts surveyed by energy research firm Platts had expected.
The EIA also said gasoline stocks fell less than expected last week, dropping by 1.2 million barrels compared to the 2.8 million barrels expected by analysts.
Supplies of distillates, which includes heating oil and diesel, were flat at 132.1 million barrels.
In other Nymex trading, heating oil futures rose 5.18 cents to settle at $3.2617 a gallon, while gasoline prices gained 9.75 cents to settle at $3.0672 a gallon.
In London, October Brent crude added $1.59 to settle at $116.22 a barrel.