NEW YORK (Reuters) - Oil rose on Monday, led by gains in natural gas and refined products at the start of the U.S. hurricane season.

U.S. crude settled up 41 cents at $127.76 a barrel, off session lows of $125.22. London Brent rose 24 cents to $128.02.

“There’s a big (crude) rally here, fueled by natgas, with fund money coming in,” said Tom Knight, trader at Truman Arnold in Texarkana, Texas.

Oil gained along with natural gas prices, which rallied up 4 percent as the start of the U.S. hurricane season stirred concerns that storms could cut oil and natural gas production and shut refineries along the Gulf of Mexico.

Forecasters have called for an active storm season, although Arthur, the Atlantic basin’s first storm this year, quickly dissipated after forming over the weekend.

Oil rallied back from early losses after an Iraqi official said the country expected to boost oil exports this month to a new post-war high of about 2.2 million barrels per day (bpd) -- about 130,000 barrels a day higher than in May.

Pressure also came from early strength in the dollar against the euro after a survey showed stronger-than-expected U.S. manufacturing activity in May.

Investors have flocked into oil and other commodities this year as a hedge against the weaker dollar and rising inflation, helping to push oil to record highs above $135 a barrel in May and raising concerns that high prices could hurt consumer nations’ economies and clip demand.

The head of the U.S. Energy Information Administration, Guy Caruso, told the Reuters Global Energy Summit that prices could hold above $100 a barrel at least through 2009 and that U.S. gasoline prices could hit new highs during the summer holiday driving season.

“If the crude oil prices stay around $120, $125, it looks like (gasoline) might be somewhere in the $4.10 area,” Caruso said.

Caruso said faltering oil production growth from nations outside of OPEC was keeping supply struggling to keep pace with demand, adding he expected demand from No. 2 consumer China to continue to boom even after the Olympics.

Oil prices have jumped six-fold since 2002 as supply gains lag demand growth from emerging economies such as China, sparking fuel protests across the globe.

Demand in consuming nations such as the United States and Britain has already showed signs of slipping due to rising fuel costs, and some analysts are concerned demand in some Asian countries could be hit as governments cut subsidies.

A Reuters poll of analysts ahead of the weekly government inventory data due out Wednesday forecast a 1.1 million barrel gain in crude inventories, a 1.4 million barrel build in distillates stocks and a 600,000 barrel build in gasoline.

Speculators cut their net long positions in crude oil to 25,867 in the week to May 27, the lowest level since late August and down from 50,060 in the previous week, data released by the U.S. Commodity Futures Trading Commission (CFTC) showed last week.