Brent rises toward $110 on storm damage fears

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Crude oil rose toward $110 on Tuesday, supported by worries of potential supply disruption on the U.S. East Coast, being battered by Hurricane Sandy, although fears of weaker demand from the storm-hit region capped gains.

U.S. refinery and pipeline companies will begin assessing the storm damage, hoping their flood defences and on-site power would allow operations to resume swiftly.

But even if refineries escape unscathed, any damage to the vast network of oil terminals, pipelines and trucking facilities in the region could complicate supply logistics.

Brent crude for December rose 13 cents to $109.57 a barrel by 1210 GMT, recovering from a fall to $108.75 earlier in the session. U.S. crude for December was up 40 cents at $85.94.

U.S. gasoline futures were little changed at $2.7530 a gallon, after climbing more than 5 cents on Monday on expectations of tighter supply.

"The shutdown of refineries basically means that there are breaks in the supply chain," said Michael Hewson, senior markets analyst at CMC Markets.

"(This) means there will be a little bit of scarcity, so that can still underpin prices."

Fuel supply into the region ground almost to a halt with the closure of two-thirds of the region's refineries, its biggest pipeline and most major ports.

BP Plc Chief Executive Bob Dudley said Sandy had disrupted fuel logistics in the U.S. North East but supplies should "bounce back quickly".

Positive company news also helped support prices, Hewson said.

BP climbed 4.9 percent after the oil major hit by a huge oil spill in the Gulf of Mexico in 2010 said it will raise its dividend for the second time in less than a year, to help restore investor confidence.

"Equity markets are rising on the back of (the positive results), and that generally tends to be fairly supportive of oil prices," Hewson said.

"It suggests demand may not fall off as much as people think because companies are showing fairly good returns."

STANDSTILL

But gains were tempered by a weaker demand outlook as Sandy, one of the biggest storms ever to hit the United States, brought the East Coast to a standstill, shutting air, ship, rail and even highway services and knocking out power to more than 2.8 million homes and businesses.

"People can't go out, they can't use, they can't consume," said Jonathan Barratt, chief executive of Barratt's Bulletin, a Sydney-based commodity research firm. "Crude inventories are running pretty high, 11-12 percent above a five-year average."

Sandy will close U.S. stock markets for a second day on Tuesday as Wall Street turned its attention to whether markets would be able to resume functioning for the month's final trading day on Wednesday.

The American Petroleum Institute said on Monday it had not yet delayed the release of its weekly petroleum stocks report but would continue to assess conditions.

Analysts, in a preliminary poll by Reuters, expect U.S. crude inventories to rise by 1.5 million barrels for the week ended Oct. 26. (Additional reporting by Florence Tan in Singapore; editing by Jane Baird and Keiron Henderson)



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