Oct. 17 (Bloomberg) -- Crude oil rose and natural gas had its biggest gain this month on concern a Caribbean storm may enter the Gulf of Mexico, disrupting oil output that's 67 percent below normal following Hurricanes Katrina and Rita.

Tropical Storm Wilma, the 21st named Atlantic storm this season, formed today west of Jamaica, the National Hurricane Center in Miami said. Another potential hurricane might hamper offshore output and onshore refining before peak winter demand for fuel in the U.S. OPEC said today it expects no ``dramatic'' drop in oil demand.

``If the storm hits any more refineries, there is the potential'' to push prices to records, said Sam Tilley, an analyst with Sucden U.K. Ltd. in London. ``But it would have to be a pretty substantial storm.''

Crude oil for November delivery climbed as much as $1.65, or 2.6 percent, to $64.28 a barrel in after-hours electronic trading on the New York Mercantile Exchange, where it was up $1.19 at 2:23 p.m. London time. Prices have declined 9.9 percent since reaching a record intraday high of $70.85 a barrel on Aug. 30, the day after Katrina made landfall. Oil is up 47 percent this year.

December Brent crude oil on London's International Petroleum Exchange gained $1.37 to $60.72 a barrel. Natural gas for November delivery on Nymex rose as much as 80.1 cents, or 6.1 percent, to $14.020 per million British thermal units.

Wilma had maximum sustained wind speeds of 40 miles an hour and was moving southwest, the hurricane center said in a forecast posted on its Web site. It was centered 205 miles, or about 330 kilometers, southeast of Grand Cayman island.

Output `Struggling'

``This ties the record of 21 named storms set back in 1933,'' the center said. ``Some strengthening is forecast during the next 24 hours.''

A hurricane watch is in place in the Cayman Islands, the center said, meaning the area may experience hurricane conditions in the next 36 hours. Wilma is expected to move into the Gulf of Mexico late Friday or early Saturday, by which time it will probably be a hurricane, the center's latest five-day forecast track shows.

``Gulf production is really struggling,'' said David Thurtell, commodity strategist at Commonwealth Bank of Australia in Sydney. ``It's very unlikely that prices are going to come significantly under $60 in the next few months.''

Oil production in the Gulf, which produces about 30 percent of U.S. output, was virtually halted last month after Rita struck Texas almost a month after Katrina hit Louisiana and Mississippi. The storms shut as much as 29 percent of the nation's refining capacity, damaging some plants and cutting power to others.

Inflation Concern

Natural gas output in the U.S. Gulf was 56 percent below normal on Oct. 14 after Hurricane Rita blew through the region, damaging platforms and under-sea pipelines, the U.S. Minerals Management Service said.

``The last 40, 50 cents of this rally is speculators in London thinking we could see more buying when the Americans start trading,'' said Rob Laughlin, a senior broker at Man Financial in London.

High oil prices may fuel global inflation, the Group of 20 industrial and developing nations said, as policy makers including the European Central Bank's Jean-Claude Trichet and the U.S. Federal Reserve's Alan Greenspan weigh interest rate increases.

Trichet said inflation may exceed the ECB's 2 percent ceiling in 2006, inching the bank closer to its first rate rise in five years. Price risks ``appeared to have increased,'' the minutes of the last U.S. Federal Reserve meeting, released Oct. 11, said.

Demand Forecast Cut

The Organization of Petroleum Exporting Countries also cut its forecast for demand this quarter by 500,000 barrels a day, easing pressure on the group to keep markets supplied.

World demand will average 84.8 million barrels a day in the final three months of the year, when oil use peaks because of the Northern Hemisphere's winter heating demands, OPEC said today in a monthly forecast. The figures show OPEC will need to produce 30 million barrels a day of crude oil this quarter to balance demand, some 300,000 a day less than it forecast a month ago.

An explosion set fire to the Lyondell-Citgo Refining Co. plant in Houston yesterday when workers tried to restart gasoline- making equipment shut since Rita struck the Texas coast on Sept. 24, the Associated Press reported.

The fire was brought under control within an hour and left one worker injured, the Houston Chronicle reported, citing Houston Fire Department chief Jack Williams.

Heating oil for November delivery rose 4.95 cents, or 2.5 percent, to $1.9995 a gallon in New York. November gasoline was up 5.54 cents, or 3.2 percent, at $1.8040 a gallon.

U.K. Agents

U.S. regular gasoline at the pump averaged nationwide fell 1.9 cents yesterday to $2.752 a gallon, the AAA motorist organization said. Prices are down 10 percent from the record $3.057 a gallon reached on Sept. 2.

Iran, OPEC's second-largest producer, accused U.K. agents of involvement in two weekend bomb blasts that killed four people in the country's main oil region on Oct. 15.

The blasts, which injured 86 people, are the third series of bombings to hit Iran's southwest province of Khuzestan. Britain was not involved in the bombings and condemned the terrorist attacks, the British embassy in Iran said in a statement yesterday.

Oil traders are aware of the Iran bombings, though it's a ``back page'' story for now, as it's not affecting supply, said Man Financial's Laughlin.

Khuzestan has witnessed unrest in recent months that the government attributes to ethnic Arab separatists who live there.

In early September, a series of bomb blasts in Khuzestan halted crude transfers from onshore wells. In June, one week before the country's presidential election, six people died after a series of explosions in Ahvaz. At least another five died in ethnic clashes in April amid riots sparked by alleged plans to change the area's ethnic makeup.

To contact the reporter on this story: Stephen Voss in London at sev@bloomberg.net Will Kennedy in Singapore at wkennedy3@bloomberg.net

Last Updated: October 17, 2005 09:26 EDT