Oil prices were nearly unchanged by midday Friday as a stronger dollar balanced concerns that Tropical Storm Gustav will impact U.S. offshore oil and gas production.
Earlier, crude prices had flirted with $119 a barrel on concerns that Gustav, which was poised to enter the Gulf of Mexico over the weekend as a hurricane, would damage offshore oil facilities in the gulf.
"The dollar is up and so we're seeing prices of crude move down from the highs. Remember that, in 2005, the market sold off hard before [Hurricane] Katrina's arrival and then rallied again when it hit,'' Tom Knight, a trader at Truman Arnold in Texarkana, Texas, said.
U.S. light, sweet crude fell 13 cents, or 0.11 percent, to settle at $115.46 a barrel, erasing losses from Thursday that resulted from the EIA's pledge to release emergency stockpiles if Gustav disrupted U.S. oil output.
London Brent crude was also lower.
Tropical Storm Gustav was forecast to strengthen into a hurricane by Friday or Saturday as it neared the Gulf of Mexico.
In anticipation, U.S. energy companies shut down production and evacuated personnel in the gulf, home to 25 percent of U.S. crude oil production and 15 percent of natural gas output.
On Friday, Gustav was about 85 miles west of Kingston, Jamaica, packing winds near 65 miles per hour. When winds reach 74 mph, the storm will regain hurricane status.
Forecasts showed the storm moving through key oil and gas producing areas of the Gulf of Mexico as a powerful Category 3 hurricane, with winds between 111 and 130 mph.
As Gustav churned through the Caribbean, another storm, Tropical Storm Hanna, formed in the Atlantic Ocean, on a path that could threaten the Bahamas and Florida, the U.S. National Hurricane Center said.
However, uncertainty about the impact of Gustav led to volatility in electronic trading ahead of the U.S. Labor Day holiday on Monday, when New York Mercantile Exchange floor trading will be shut. Electronic trading on Globex will not be affected.
"Right now, there is still uncertainty on where exactly Gustav will hit, and so it is difficult to determine the damage that the storm might bring,'' said Mark Waggoner, president of Excel Futures in Huntington Beach, California.
"It may be four days before it actually hits the Gulf Coast, and the forecasts show a wide area where it may hit. So some people are positioning, some are repositioning ahead of the long weekend.''
Oil received further support from a report in Britain's Daily Telegraph newspaper that the Russian government had told at least one of its oil companies to prepare for a possible cut in shipments to Europe in response to threatened sanctions, citing a single unidentified source.
Russia's second-largest oil producer, Lukoil, denied the report. The country's energy minister said Moscow was doing everything it could to ensure stable oil supplies to Europe and to keep its good name as an energy supplier.
Traders were also eyeing a meeting of the Organization of Petroleum Exporting Countries scheduled for September 9 in Vienna that will review the oil exporting group's output policy.
OPEC could cut output at the meeting but will most likely maintain current production levels, Venezuela's Oil Minister Rafael Ramirez said on Thursday.