Gustav was expected to strengthen to a powerful Category 3 hurricane over the weekend before tearing into offshore production areas early next week.

With about a quarter of US oil output and 15% of natural gas production in Gustav's path, US crude oil shot up early on Friday on fears of supply disruption.

But oil prices fell back to settle down 13 cents at $115.46 a barrel on a stronger dollar and expiring products contracts.

Forecasters were unsure where Gustav would make landfall, but analysts said energy prices were sure to rise.

"With both oil and gasoline inventories much lower than when Katrina and Rita hit, the price consequences could be even worse this time," warned CIBC World Markets chief economist Jeff Rubin.

Losses from Hurricanes Katrina and Rita in 2005, along with delays in big projects such as BP's Thunder Horse, have produced "a multi-year and now likely irreversible decline in oil production from the region," said Rubin.

As of Friday, 6.62% of Gulf oil production and 1.84% of natural gas production were shut down due to Gustav, the US Minerals Management Service said.

Energy companies were shutting down offshore platforms. Shell Oil, the US Gulf's largest producer, started shutting production at some platforms on Thursday. Offshore operators such as BP, Apache and Chevron followed suit on Friday.

The Louisiana Offshore Oil Port – the only US deepwater oil port – was to stop offloading tankers yesterday ahead of massive storm swells expected from Gustav.

Ship pilots along the Mississippi River between the Gulf of Mexico and New Orleans were preparing to halt ship movements as early as today.

Sabine Pipeline LLC, operator of the Henry Hub, the benchmark NYMEX natural gas trading point, said it could begin shutting down pipeline operations today.

After Katrina and Rita hit in 2005, crude oil and gasoline prices shot to record highs. Those storms wrecked more than 120 offshore platforms, destroyed underwater pipelines and shut 25% of US oil and fuel production for months.

Energy traders are also watching Tropical Storm Hanna as it churns in the Atlantic. The storm is now on track to hit Florida but could veer into oil and gas-producing areas.

"Last night, one of the models took Hanna basically right where Gustav makes landfall, only four days later," said one Texas energy trader.

Refiners were also braced for the storm. Motiva Enterprises, a joint venture between Shell and Saudi Refining, said the workforce at its 236,000 barrel per day Norco refinery in Louisiana was reduced to a skeleton staff, but the refinery continued to operate at planned rates.