UPDATE 1-Oil extends drop as dollar gains, eyes storms

                                

                                
 * Tropical Storm Hermine moves towards Mexico-Texas border
                                
 * Tighter North Sea market boosts Brent relative to WTI
                                
 * Coming Up: U.S. employment index for August; 1400 GMT
  (Updates prices)
                                
 By Alejandro Barbajosa
                                
 SINGAPORE, Sept 7 (Reuters) - Oil extended losses on
Tuesday as the dollar strengthened and as Tropical Storm
Hermine made landfall near the Mexico-Texas border with no
signs of disruption to crude or refining output.
                                
 U.S. crude for October <CLc1> tumbled as much as 1.25
percent to $73.67 and was down 91 cents at $73.69 a barrel at
0615 GMT, having extended losses in a three-day session that
will include trades logged on Sunday, Monday and Tuesday
because of the U.S. Labor Day holiday.
                                
 The New York Mercantile Exchange, home to West Texas
Intermediate (WTI) crude futures, will issue just one
settlement for those three days.
                                
 The euro slid on Tuesday from a three-week peak against the
dollar as worries about the European banking sector re-emerged,
prompting investors to cut risks. The greenback was up almost
0.5 percent against a basket of currencies. [USD/] <.DXY>
                                
 "The U.S. dollar seems to have stopped to decline, but with
the holiday in New York, all markets are going to be very
quiet," said Ken Hasegawa, a commodity derivatives manager at
brokerage Newedge in Japan.
                                
 "Crude oil to some extent will have influence from
financial markets, but it is completely stuck in a range from
$70 to $80. It's very comfortable for everyone."
                                
 Front-month U.S. crude has for most of this year remained
between $70 and $80, a range that OPEC says is high enough to
foster investment in capacity expansion and low enough to
sustain economic recovery.
                                
 A stronger dollar reduces the purchasing power of oil users
outside the United States.
                                
 Asian stocks hovered near one-month highs earlier on
Tuesday before slipping as investors awaited a flood of Chinese
data as early as this week. The indicators are expected to show
continued moderation in economic growth in August at the
world's second-largest oil-consuming nation. [ID:nSGE685069]
                                
 ICE Brent for October <LCOc1> fell 31 cents from Monday's
close to $76.56, partly because of the de-phase caused by
NYMEX's extended session.
                                
 Also contributing to Brent's smaller decline was an
increase in demand for prompt cargoes in the North Sea physical
market as refining margins widened amid expectations that
consumption from emerging economies, led by Asia, will increase
for the rest of the year.
                                
 HURRICANE ACTIVITY
                                
 Tropical Storm Hermine formed early on Monday and made
landfall in northern Mexico near the U.S. border, according to
the U.S. National Hurricane Center, but had little impact on
Gulf of Mexico oil and gas operations..
                                
 "The formation of Tropical Storm Hermine in the southern
Gulf of Mexico highlights how rapidly new threats can appear
now that we are approaching the peak of the hurricane season,"
JP Morgan analysts headed by Lawrence Eagles said in an
e-mailed note.
                                
 BP Plc <BP.L><BP.N>, the largest oil producer in
U.S.-regulated areas of the Gulf of Mexico, and Shell Oil Co
<RDSa.L> said late Monday that Hermine was not affecting their
offshore operations. [ID:nN06190191]
                                
 Valero Energy Corp <VLO.N> said production at its
315,000-barrel-per-day (bpd) Corpus Christi, Texas, refinery
was at planned levels, but the plant was preparing for possible
rough weather from the storm.
                                
 Petroleos Mexicanos, or Pemex, as the Mexican state-run oil
company is known, said there were no reports of damage to
facilities in or near the Gulf of Mexico after Hermine moved
north from the oil-rich Bay of Campeche.
                                
 The Gulf is also home to about 30 percent of U.S. oil
production, 11 percent of the country's natural gas output and
more than 43 percent of U.S. refinery capacity.
                                
 In the Atlantic, the remnants of Tropical Storm Gaston
continued to move westward and had a medium chance of reforming
as a tropical cyclone during the next 48 hours, according to
the NHC. Storm models predicted Gaston would move west towards
Puerto Rico, the Dominican Republic and Haiti, but it was still
too early to determine whether it would enter the Gulf.
 (Editing by Manash Goswami)