PORT-AU-PRINCE (Reuters) - Gustav weakened after it slammed into Haiti as a hurricane on Tuesday, killing at least two people, but could strengthen again and become the first major storm to threaten U.S. oil and gas production in the Gulf of Mexico since 2005.

U.S. crude settled up $1.16 at $116.27 a barrel, while London crude traded up 60 cents to $114.63, as traders grew concerned about the storm's potential threat to offshore oil platforms and pipelines in the Gulf of Mexico.

Most computer models used to predict hurricane tracks showed Gustav headed toward Louisiana and Texas, where rigs produce a quarter of U.S. crude oil and 15 percent of its natural gas and which were slammed by the devastating hurricanes Katrina and Rita three years ago.

The seventh storm of the 2008 Atlantic season barged ashore in southern Haiti 10 miles west of Jacmel with top sustained winds of 90 miles per hour (145 km per hour), a Category 1 hurricane on the five-step Saffir-Simpson intensity scale, the U.S. National Hurricane Center said.

But the Miami-based center said its top winds dropped to 70 mph (110 kph), below the threshold for hurricanes, as it moved over rugged mountains late on Tuesday.

"Gustav is moving back over water and is expected to regain hurricane strength on Wednesday once it clears the southwestern peninsula of Haiti," the forecasters said.

"More significant strengthening is forecast on Thursday and Gustav could become a Category 2 hurricane when it passes between Cuba and Jamaica."

Haiti's Civil Protection office head Alta Jean-Baptiste said two people were believed killed and five injured in a landslide in a town near Jacmel, but there were no other immediate reports of serious damage.

Despite the storm, demonstrators took to the streets for a second day in the southern city of Les Cayes to protest high food prices in the impoverished Caribbean country. As on Monday, authorities said U.N. peacekeepers and Haitian police firing tear gas dispersed them.

WILL REGAIN STRENGTH

If Gustav becomes a Category 3 or higher as it churns westward south of Cuba over deep, warm waters that provide tropical cyclones with fuel, it would be the first since Hurricane Wilma of 2005.

"If Gustav is able to thread the needle, passing through the Yucatan Channel into the Gulf of Mexico, it could intensify to Category 4 or 5 strength over the warm water in the Gulf," private forecaster AccuWeather said.

Oil companies began preparations. The largest producer in the region, Royal Dutch Shell Plc, said it would begin evacuating personnel from rigs on Wednesday.

At 11 p.m. (0300 GMT on Wednesday), the center of the storm was 85 miles west of Port-au-Prince, moving west-northwest at 8 mph (13 kph).

Katrina, a monstrous Category 5 hurricane in the Gulf before it came ashore as a Category 3, killed 1,500 people on the U.S. Gulf coast and devastated New Orleans, while Rita, knocked out a quarter of U.S. fuel production in 2005.

Oil prices soared to what were then record levels as the hurricanes wrecked production platforms and offshore pipelines and battered several major oil refineries.

Gustav's immediate threat to Haiti's 9 million people was rainfall of 6 to 12 inches, with the possibility of up to 25 inches in isolated mountainous areas, the U.S. hurricane center said.

Haiti is vulnerable to deadly mudslides and flash floods because its hillsides have been stripped of trees by people seeking charcoal for cooking fuel.

In 2004, Tropical Storm Jeanne was blamed for flooding that killed around 3,000 people, while spring floods that year killed another 2,000 Haitians.

Hurricane alerts were in effect as of Tuesday evening for parts of Haiti, Cuba and the entire Cayman Islands.

(Additional reporting by Robert Campbell in New York and Erwin Seba in Houston; Writing by Tom Brown; Editing by Michael Christie)

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By Joseph Guyler Delva

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