NEW YORK -- Crude prices retreated from more than 120 U.S. dollars a barrel Thursday as traders bet the U.S. government would step in if Tropical Storm Gustav hit the Gulf of Mexico.

Light, sweet crude for October delivery settled 2.56 dollars lower to 115.59 dollars a barrel after rising as high as of 120.50 dollars 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 U.S. Gulf Coast Tuesday.

However, traders believed that the U.S. 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 U.S. natural gas supplies jumped much more than expected last week because of weak demand.

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