Crude prices retreated from more than US$120 a barrel yesterday as traders bet the US government would step in if Tropical Storm Gustav hit the Gulf of Mexico.

Light, sweet crude for October delivery settled US$2.56 lower to US$115.59 a barrel after rising as high as of US$120.50 on the New York Mercantile Exchange.

Forecasters said Gustav, the first storm of the 2008 Atlantic hurricane season to pose a serious threat to offshore oil and gas installations in the Gulf, might march toward the US Gulf Coast Tuesday.

However, traders believed that the US government could release supplies from the Strategic Petroleum Reserve to counter any drop in production from Gustav.

Oil was pressured by a government report showing that US natural gas supplies jumped much more than expected last week because of weak demand.

In London, October Brent crude fell US$1.71 to US$114.50 a barrel.