Oil futures rebounded from earlier lows on Friday as traders bought on news that a tropical storm is forming in the Atlantic Ocean and a report of a refinery problem.
"A disturbance just left the coast of Africa, and it looks like it has a little bit of teeth," said James Cordier, president of Liberty Trading Group in Tampa, Florida.
Forecasts show the disturbance has the potential to develop into a tropical storm and strike the Gulf of Mexico within 2 weeks, said Addison Armstrong, an analyst at TFS Energy Futures LLC in Stamford, Connecticut.
The news injected some buying into a market that has been dominated by selling lately. Still, the new "storm premium" was moderate as the same credit and liquidity concerns roiling equity markets continued to weigh against storm forecasts and a report from an international watchdog agency that predicted tight supplies of oil amid growing demand over the next two years.
Light, sweet crude for September delivery fell US$0.12 to settle at US$71.47 a barrel in trading on the New York Mercantile Exchange, ending the week down 5.3 percent. September gasoline rose US$0.0208 to settle at US$1.9548 a gallon (3.8 liter), ending the week off 3.7 percent. Both contracts traded sharply lower earlier in the day, then rose into positive territory amid fears the storm could disrupt oil and gas supplies from the Gulf of Mexico.
In London, September Brent crude rose US$0.18 to settle at US$70.39 a barrel on the ICE Futures exchange.
It is far too early to tell whether a storm will develop or what course it will take, but it is the first serious threat of tropical weather this season, analysts said. An extremely destructive hurricane season in 2005 was followed by a very light season last year, when no hurricanes hit the US.
Natural gas futures rose US$0.234 to settle at US$6.82 per 1,000 cubic feet (US$0.24085 per cubic meter) on news of the storm, extending a rally that started after the government on Thursday reported inventories grew less than expected last week. NYMEX heating oil lost US$0.018 to settle at US$1.9712 a gallon.
Prices were also supported by news a ConocoPhillips facility in New Jersey that is closed for maintenance had delayed a planned restart.
Analysts said worries are escalating that the economy will be hurt by a spreading credit crunch, which could cut demand for gas and oil.
"We're going to have a slowdown, and we're going to need fewer barrels," Cordier said.
Several weeks of increasing refinery activity and rising gasoline inventories appeared to have alleviated those concerns, sending retail gas prices and gas futures sharply lower. Oil, however, surged to new records last week, a rally many analysts attribute to speculative buying.
Since setting new records, oil prices have fallen about US$8 a barrel. Analysts are split on whether this signifies a correction or an end to the bull market.
"The underlying fundamental picture ... remains bullish," Armstrong wrote in a research note, citing a report Friday from the International Energy Agency that predicts global demand for oil will grow by 2.5 percent next year. Armstrong also said Chinese imports of oil, which grew 39 percent last month compared to July last year, support high oil prices.
"It's kind of the perfect storm for crude oil right now," Cordier said. "We're looking at less demand and plenty of oil."