Crude oil fell from an 11-week high on speculation that Tropical Storm Bonnie won't be strong enough to damage production platforms in the Gulf of Mexico.
Oil slipped 0.4 per cent after the National Hurricane Center said that slight strengthening is possible when Bonnie reaches the Gulf tomorrow. Prices surged this week as global stock markets rallied on signals that economic growth will accelerate.
``You had such a big lift yesterday that it makes sense to give back some of it,'' said Bill O'Grady, chief market strategist at Confluence Investment Management in St. Louis. ``One reason we ended so strong yesterday was the tropical storm. The path is threatening but it probably will only be a tropical storm, and not much of one.''
Crude for September delivery fell 32 cents to settle at $US78.98 a barrel on the New York Mercantile Exchange. Yesterday, the contract rose to $US79.30, the highest settlement since May 5, as stock markets advanced. September oil increased 3.4 per cent this week.
Brent crude for September settlement on the London-based ICE Futures Europe exchange declined 37 cents, or 0.5 per cent, to end the session at $US77.45 a barrel.
An Air Force Reserve Hurricane Hunter plane found signs that Bonnie's circulation is becoming less defined. ``If this trend continues it is possible for Bonnie to degenerate,'' according to a hurricane center forecast discussion.
Storm outlook
``The storm probably won't turn into anything,'' said Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington. ``After surviving the big hurricanes of the last five years, the remaining production platforms will be harder to knock out.''
All platforms in the Gulf were shut after hurricanes Katrina and Rita battered the region in 2005. The Gulf accounts for about 31 per cent of US oil output and 10 per cent of its natural-gas production, according to the Energy Department. The coast along Louisiana and Texas is home to 42 per cent of US refining capacity.
Tropical Storm Bonnie has idled about 28 per cent of crude- oil production in the Gulf of Mexico and 10 per cent of natural- gas output, the Bureau of Ocean Energy Management, Regulation and Enforcement said today in a statement on its website.
``The important thing to keep in mind is that production won't be shut in for any length of time,'' Sieminski said.
BP Plc said the storm's high seas made it necessary to move ships working on the relief wells that will be used to kill the wrecked Macondo well in the Gulf, site of the worst oil spill in US history. The delay will set back completion of the work to plug the well to the end of August.
Equity market
Oil moved in the opposite direction of the Dow Jones Industrial Average for the first time in seven sessions. The Dow erased its 2010 loss as reports that Genzyme Corp. has been approached with a takeover offer spurred optimism that a rebound in mergers and acquisitions is accelerating.
The Dow gained 0.9 per cent to 10,418.25 and the Standard & Poor's 500 Index rose 0.6 per cent to 1,100.73 at 2:30 p.m.
``It's interesting that we are trailing the S&P 500 today,'' said Tim Evans, an energy analyst at Citi Futures Perspective in New York. ``We've been in the habit of correlating with the S&P 500 lately, which doesn't make a lot of sense. Petroleum markets are quite different from equities and have their own fundamentals.''
Crude oil may fall next week on speculation that US inventories will climb as imports increase, a Bloomberg News survey showed. Thirteen of 34 analysts, or 38 per cent, forecast crude oil will decline through July 30. Eleven respondents, or 32 per cent, predicted that futures will be little changed and 10 saw an increase.
Oil volume on the Nymex was 346,568 contracts as of 3:07 p.m. in New York. Volume totaled 576,007 contracts yesterday, 20 per cent below the average of the past three months. Open interest was 1.24 million contracts.
Bloomberg News
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