Oil Falls as Hurricane Gustav Weakens, Easing Damage Fears (Grant Smith and Alexander Kwiatkowski)

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  (Bloomberg) -- Crude oil fell, reversing earlier gains, after Hurricane Gustav weakened, easing concern of widespread damage to drilling rigs and refineries.

  Gustav has been downgraded to a Category 2 storm, the second-weakest of the five levels of hurricane strength, the National Hurricane Center in Miami said in its latest advisory. Preparations for the storm closed 96 percent of offshore oil production and about 10 percent of U.S. refining capacity.

  ``The latest forecast shows that while Gustav is perfectly aimed at the heart of U.S. oil and gas production it's not quite as strong as was initially feared,'' said Mike Wittner, Societe Generale's London-based head of oil research. ``The refining system is not as stretched this time round compared with Rita and Katrina.''

  Crude oil for October delivery fell as much as $3.01, or 2.6 percent, to $112.45 a barrel in electronic trading on the New York Mercantile Exchange, and traded at $113.19 at 2:32 p.m. London time. It earlier rose as much as 2.2 percent to $118.

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