By Jane Merriman
LONDON (Reuters) - Oil fell back on Thursday, from above $120 a barrel, after the International Energy Agency pledged to help out with additional supply if Tropical Storm Gustav damages U.S. oil installations in the Gulf of Mexico.
The storm is forecast to reach hurricane status as it approaches the Gulf of Mexico, home to a quarter of U.S. crude oil production and 15 percent of its natural gas output.
U.S. crude oil for October delivery was down 15 cents at $118.00 a barrel by 1503 GMT. It reached an intraday high of $120.50 a barrel.
London Brent crude was up 3 cents at $116.25 a barrel.
The International Energy Agency has said it is ready to release strategic oil stocks if needed. The agency, adviser on energy issues to 27 industrialized countries, released oil product stocks in 2005 after Hurricane Katrina.
"The impact of Gustav could now be assuaged by this intervention," said Christopher Bellew, of Bache Commodities Limited.
Gustav is forecast to hit the U.S. Gulf Coast around Monday and will be the first major hurricane to threaten U.S. energy installations since hurricanes Katrina and Rita in 2005.
"The impact of Gustav on the downstream sector could be felt more acutely -- at least in the short term -- as there is no U.S. government inventory that can be released," said Thomas Stenvoll, energy strategist at UBS, said in a research note.
EVACUATION
The storm strengthened on Thursday as it headed towards Jamaica and was expected to regain hurricane status later in the day, the U.S. National Hurricane Center said.
The weather system currently has winds of up to 70 miles an hour, just shy of the 74 mph required for a Category One hurricane.
Shell Oil Co,
"(There is the U.S.) Labor Day holiday on Monday, and the market will be shut. There's a lot of nervousness," said Peter McGuire, managing director of Commodity Warrants Australia.
Oil has fallen more than $30 a barrel from its record peak of $147.27 reached on July 11. But the threat of Gustav has helped prices to regain some lost ground.
The market surged to record highs this year in response to a string of bullish factors, including a weak U.S. dollar, expectations of a tighter supply/demand balance long term and political tensions over Iran.
The dollar has strengthened, but initially slipped from a six-month high against the euro on Thursday after comments by European Central Bank officials the previous day dampened speculation about a cut in euro zone interest rates.
The U.S. currency then moved higher, which contributed to the pull-back in oil.
(Additional reporting by Osamu Tsukimori in Tokyo; editing by Anthony Barker)
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