NEW YORK (AP):

Energy futures surged yesterday on concerns that Tropical Storm Dean will turn into a hurricane and strike oil and gas installations in the Gulf of Mexico.

Prices got a late morning boost when a second tropical depression, located in the Gulf south of Texas, strengthened and was upgraded to Tropical Storm Erin.

The storms overshadowed a weekly inventory report from the Energy Department's Energy Information Administration that usually sets the tone for several days of trading. Traders worry that Dean, bearing down on the Caribbean from the central Atlantic, will damage oil and gas infrastructure in the Gulf, cutting supplies. While Erin was also supporting prices, it is not expected to have much impact on production.

"The top story of the day is Tropical Storm Dean, and that really overrides these inventory numbers," said Tim Evans, an analyst at Citigroup Inc.

The government report showed larger-than-expected declines in oil and gasolene inventories last week, but an increase in refinery activity that was in line with expectations. The decline in crude inventories was supporting oil prices, though the rest of the report was viewed as largely neutral, analysts said.

Surprise

"I don't think it's a surprise," said Phil Flynn, an analyst with Alaron Trading Corp. in Chicago.

Light, sweet crude for September delivery rose US$1.73 to US$74.11 a barrel on the New York Mercantile Exchange, and September gasolene rose 5.62 cents to US$2.03 a gallon.

In London, September Brent crude futures rose US$1.65 to US$72.16 a barrel on the ICE Futures exchange.

In other Nymex trading, heating oil futures rose 6.2 cents to US$2.0445 a gallon, and natural gas prices gained 21.5 cents to US$7.155 per 1,000 cubic feet.

In its inventory report, the EIA said refinery utilisation rose 0.5 percentage points to 91.8 per cent of capacity in the weekended August 10, exactly in line with the expectations of analysts surveyed by Dow Jones Newswires. Refinery utilisation fell by a surprise 2.3 percentage points last week.

Crude oil inventories fell 5.2 million barrels, the EIA said, and gasolene inventories dropped 1.1 million barrels. Analysts had expected crude stockpiles to fall 2.1 million barrels, and gasolene inventories to fall 400,000 barrels.

Distillates, which include heating oil and diesel fuel, rose 200,000 barrels. Analysts had expected a one million barrel increase.

Demand for gasolene

Imports of gasolene fell last week by an average of 184,000 barrels a day to 1.213 million barrels, the EIA said. Crude oil imports fell 125,000 barrels a day, on average, to 9.873 million barrels.

Demand for gasolene averaged over 9.6 million barrels a day over the last four weeks, about 0.4 per cent above the same period last year, the EIA said.

"There's nothing really here to make you say, 'Wow!"' Evans said.

Indeed, energy futures barely reacted to the report. Traders remained more concerned about the uncertain path of 'Dean', which strengthened in the Atlantic Wednesday but remained far from land, forecasters said. Dean could reach hurricane strength by Friday as it moves over warm waters where atmospheric conditions are favourable for intensification, forecasters said.

"Dean could be a category 3 (hurricane) within five days," Evans said.

But its track is far from clear. "This thing could go right into Houston, Texas, but nobody knows," Flynn said.

Erin prompted Royal Dutch Shell PLC to evacuate 188 people from facilities in its path. The company said it will temporarily suspend five million cubic feet of daily natural gas production. Other oil and gas producers said they are monitoring the storm.