UPDATE 2-Oil rises towards $120 as Gustav threatens US Gulf

                                
 * Oil rises towards $120 on fears of storm Gustav impact
                                
 * Gustav projected to hit U.S. Gulf coast early next week
                                
 
                                
 (Recasts, adds comment, updates prices, previous TOKYO)
                                
 By Jane Merriman
                                
 LONDON, Aug 28 (Reuters) - Oil rose towards $120 a barrel on
Thursday, its fourth day of gains, boosted by the threat of
damage to U.S. oil installations from Tropical Storm Gustav.
                                
 The storm is forecast to regain 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 <CLc1> was up 76 cents
at $118.91 a barrel by 1000 GMT. It earlier hit an intraday high
of $119.25 a barrel.
                                
 London Brent crude <LCOc1> was up 68 cents at $116.90 a
barrel.
                                
 "Gustav...is on track to pose a sizeable threat to both
upstream and downstream production capacity," Thomas Stenvoll,
energy strategist at UBS said in a research note.
                                
 "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."
                                
 The storm 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.
                                
 
                                
 EVACUATION
                                
 AccuWeather said Gustav could strengthen into a Category 4
or 5 storm over the Gulf.
                                
 Shell Oil Co, the U.S. Gulf of Mexico's largest producer,
said output would be affected as early as Thursday as it
evacuated all workers from offshore operations. [ID:nN27455718]
                                
 "It looks as though the hurricane is on track to inflicting
damage," said Ken Hasegawa, an analyst at broker Newedge in
Tokyo. "It would be very difficult to be in a short position
today and tomorrow."
                                
 He predicted prices could surpass last week's high of
$122.04 by the end of day.
                                
 "(There is the U.S.) Labour 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.
                                
 He said oil could hit around $130 over the next week and a
half on hurricane worries.
                                
 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 been strengthening, but 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. [USD/]
 (Additional reporting by Osamu Tsukimori in Tokyo; editing by
James Jukwey)