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Oil rises as storm fears trump economic worry

5:36pm EDT
By Gene Ramos
NEW YORK (Reuters) – U.S. crude oil futures bounced late to close slightly higher on Thursday, breaking two straight days of losses, as the possibility of a storm developing in the Caribbean by the weekend overshadowed a less optimistic economic outlook from the Federal Reserve.
Technical support near $75 a barrel also provided some relief, turning the session into an “inside day,” a situation in which prices move within the previous day’s range.
U.S. crude for August delivery settled up 16 cents at $76.51 a barrel, after trading as low as $75.32.
Volume on the August contract was moderate, at around 245,000 contracts as of 3:45 p.m. EDT (1845 GMT).
In London, ICE Brent futures ended up 20 cents at $76.47 a barrel, climbing from the day’s low of $75.40.
The U.S. National Hurricane Center said on Thursday that a tropical wave over the Caribbean Sea had about a 40 percent chance of developing into a tropical depression over the next couple of days.
If the depression develops, a further strengthening could turn it into a tropical storm that would be named Alex. Most weather models project the current weather disturbance will turn north into the Gulf of Mexico after crossing Mexico’s Yucatan Peninsula.
“Shorts are very sensitive — you do have that storm possibility lurking in the Gulf of Mexico — and the dollar breaking down a bit was supportive to crude,” said Richard Ilczyszyn, senior market strategist at Lind-Waldock in Chicago.
A storm could also further complicate BP Plc’s (BP.L: Quote, Profile, Research, Stock Buzz) efforts to clean up its massive oil spill, and would disturb current oil production in operating platforms in the region.
The dollar fell against the euro, still reeling from a less bullish outlook on the U.S. economy from the Federal Reserve on Wednesday. The dollar’s weakening usually supports investment flows shifting to riskier assets such as oil and other commodities.
Earlier, the euro slipped on renewed worries about Greece’s sovereign debt but rose as long-term investors covered short positions.
U.S. crude prices are up about 20 percent from the $64.24 low hit on May 20, but are still about 12 percent lower than the 19-month peak of $87.15 hit on May 3, before the European debt crisis began.
JOBLESS CLAIMS, EURO ZONE DATA SUPPORT
After hitting the day’s low, U.S. crude found support from data showing the number of U.S. workers filling new applications for unemployment insurance fell more than expected and euro zone industrial orders rose at their fastest pace in 10 years.
Gains were curbed, however, by worries that remained after the Fed assessed the economic recovery as shaky.
Any upward thrust was also limited by brimming U.S. crude inventories. U.S. government data on Wednesday showed domestic crude stockpiles jumped 2 million barrels last week, though gasoline fell more than expected, by 800,000 barrels.
Adding to fundamental worries, industry data provider Genscape showed oil inventories at the key U.S. Cushing, Oklahoma, crude oil delivery hub rose to 39.57 million barrels in the week to June 22.
The International Energy Agency said on Wednesday that global oil supplies will match expected growth of 1.2 million barrels in daily oil consumption through to 2015.
Meanwhile, the controversy intensified over a six-month deepwater drilling ban imposed by the U.S. government in the wake of the BP oil spill in the Gulf of Mexico.
On Thursday, a U.S. federal judge refused to put on hold his decision blocking the government from enforcing the ban, rejecting the Obama administration’s request to stay his decision.
(Reporting by Gene Ramos; additional reporting by Robert Gibbons in New York, Emma Farge in London, and Alejandro Barbajosa in Singapore; editing by Jim Marshall)

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