The price got a boost after midday when forecasters said Isaac had strengthened into a Category 1 hurricane with 75 mph winds.
Benchmark oil rose 86 cents to $96.33 per barrel in New York as traders waited to see how much -- and for how long -- the storm's powerful winds and driving rains will affect oil production and refinery operations in the region.
Nearly 94 percent of oil production in the Gulf, or 1.3 million barrels per day, has been halted, the U.S. government said Tuesday. At least 1 million barrels per day of refining capacity is expected to be shut down, which is about half the refining capacity in the storm's predicted path. The U.S. consumes about 19 million barrels of oil products per day.
Isaac is expected to make landfall over southeastern Louisiana, possibly the New Orleans area, either late Tuesday or early Wednesday.
"We have to wait and see. A lot of refinery capacity was taken down and the key is going to be how the restart goes," said Andrew Lebow, senior vice president of energy derivatives at Jefferies Bache LLC.
Refineries should escape significant damage if Isaac remains a Category 1 storm. The bigger issue is whether they'll have access to electricity. Some analysts say they could be up and running within hours without damage or a loss of electricity. Others say they likely will remain out of operation for about three days.
Price Futures Group analyst Phil Flynn said that oil producers will take more oil out of inventory in the coming weeks to make up any lost production. The storm also will slow imports of oil into the Gulf.
Pump prices continued to increase ahead of Isaac's landfall. The national average for a gallon of gasoline rose less than a penny to $3.756 per gallon, according to AAA, Wright Express and the Oil Price Information Service. That's nearly 4 cents more than a week ago.
Gas prices in Mississippi, Alabama, Florida and Louisiana -- states in Isaac's path -- have tallied even bigger increases.
In a related development, a fire was extinguished at Venezuela's biggest oil refinery after burning for three days, officials said. Oil Minister Rafael Ramirez said officials expect to restart operations in two days. The U.S. imports about 360,000 barrels per day of gasoline from Venezuela, which is delivered to the East Coast.
That helped sink gasoline futures. They fell 2.87 cents to $3.126 per gallon a day after rising nearly 8 cents on Monday.
Brent crude rose 32 cents to $112.58 in London.
In other energy trading:
-- Heating oil rose 1 cent to $3.12 per gallon.
-- Natural gas fell 4 cents to $2.61 per 1,000 cubic feet. The government estimated that about 67 percent of Gulf natural gas production has been suspended due to Isaac.
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