Updated from 12:20 p.m.

Oil prices jumped Tuesday as a new tropical storm materialized in the Atlantic and traders went long ahead of the Energy Department's weekly inventory report.

After dropping nearly 4% in the past three session, August crude closed up $1.70 to $60.62 a barrel on Nymex. Gasoline futures, which closed at a record high of $1.80 a gallon last week, gained 4 cents to $1.77 a gallon.

Natural gas prices recently hit a contract high of $8 per thousand cubic feet, only $2 below the all-time high of $10 hit in early 2003.

The Energy Department is scheduled to release it weekly inventory report on Wednesday. It's expected to show a 3.2 million-barrel decline in crude stocks, as refiners continue to operate at full tilt. Distillate stocks, a group which includes jet fuel, heating oil and diesel, are estimated to rise by 2.2 million barrels, which would be the eighth-straight weekly gain.

Reports of Tropical Storm Emily, a fifth named storm forming in the Atlantic, lent support to oil prices Tuesday. After three straight days of selling, the market is stocking up again ahead of potential supply disruptions in the Gulf of Mexico.

The previous storms, Cindy and Dennis, caused minimal damage to oil infrastructure, though

BP's

(BP) - Get Report

Thunder Horse semi-submersible platform was listing Tuesday morning. The Thunder Horse field, located about 150 miles offshore of New Orleans, has yet to begin production of hydrocarbons, the company said. Shares fell 1.1% to $65.71.

"This market is like a bucking bronco," said Lee Fader, futures trader at ABN Amro. "The BP platform got everybody spooked and the approaching hurricane is threatening natural gas operation in the Gulf."

According to a Goldman Sachs report, if the platform sinks, BP's long-term production growth could be reduced to 2%, from 3%. Even if the platform is restored, BP's 2005 production will be cut by 2%, while its 2006 production will fall by 4.6%, the report says.

Citigroup estimates without the Thunder Horse platform, BP's production growth will fall to 5.4% from an estimated 8.9% in 2005, and to 3.8% from 5.2% in 2007. BP owns a 75% working interest in the field and the rest is owned by

Exxon Mobil

(XOM) - Get Report

In a monthly update, the Energy Department said crude prices averaged more than $56 a barrel in June and will probably average $59 a barrel for the third quarter. The estimate is about $6 higher than was previously projected, and $15 above the year-ago level. For the summer, gasoline prices are estimated to average $2.25 per gallon, 8 cents higher than last month's projection and about 35 cents higher than the same time a year ago.

In more company news, shares of

Atwood Oceanics

(ATW)

bounced somewhat after plunging Monday on weak guidance. The offshore drilling company fell about 10% Monday after pegging 2005 earnings at $1.50 to $1.60 a share, down from prior guidance of $1.90 to $2.00 a share.

"We still are anticipating very strong upside for 2006 and 2007," said James Holland, senior vice president of Atwood, in a phone interview. "I think investors are seeing that nothing in the release was of concern to the long term, it just said that we won't reach the upside we expect as quickly as we thought." Shares were recently up $2.89, or 4.7%, to $64.55.

Elsewhere in the offshore drilling universe, shares of

GlobalSantaFe

(GSF)

rose after Raymond James upped its 2005 and 2006 full year estimates to $1.68, from $1.62, and to $3.04 from $2.72, respectively. The company recently provided a fleet update saying dayrates have improved across all of its jackup rigs. GlobalSantaFe was up $1.33, or 3.2%, to $43.38.

FMC Technologies

(FTI) - Get Report

, which provides equipment and services to the oil and gas industry, was rated a buy-two by UBS in new coverage. The Global Research Equity team said in a note that "FMC Technologies will continue to be the dominate player in the subsea market due to its superior business model, strong management team, and industry leading technology." UBS also expects the subsea production equipment sector to grow by 10% to 20% over the next few years, driven by increased offshore exploration in West Africa and Asia. Share of FMC rose $1.40, or 4.3%, to $34.20.

Among the major oil producers shares were mixed, while the Amex Oil Index was up 1%. Exxon rose 0.1%,

Chevron

(CVX) - Get Report

gained 0.8%,

ConocoPhillips

(COP) - Get Report

added 1.4%, and

Royal Dutch/Shell

(RD)

gained 0.5%.

As for energy index funds, rallying oil prices are prompting investors to buy shares of energy focused funds such as the

Oil Service HOLDERS Trust

(OIH) - Get Report

, which is up 1.9% Tuesday, and up 25% on the year. The

Energy Select Sector SPDR

(XLE) - Get Report

is currently up 1%, and 30% since January.