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 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, Conn.
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 12 cents to settle at $71.47 a barrel in trading on the New York Mercantile Exchange, ending the week down 5.3 percent. September gasoline rose 2.08 cents to settle at $1.9548 a gallon, 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 18 cents to settle at $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 U.S.
Natural gas futures rose 23.4 cents to settle at $6.82 per 1,000 cubic feet 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 1.8 cents to settle at $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. Financial markets have been shaken by fears about spreading problems that started with growing defaults by so-called subprime home mortgage borrowers. The Dow Jones industrials fell 387 points on Thursday, and were lower on Friday.
"We're going to have a slowdown, and we're going to need fewer barrels (of oil)," Cordier said.
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 At the pump, gas prices fell 1.3 cents to a national average of $2.801 a gallon, according to AAA and the Oil Price Information Service. Retail prices, which typically lag the futures market, peaked at $3.227 in late May, following futures higher on concerns about the refining industry, which was experiencing an unusual number of unexpected outages.
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 $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 in July compared to July 2006, support high oil prices.
Cordier disagrees, noting that domestic oil inventories are at historically high levels, and that peak summer driving season is nearly over.
"It's kind of the perfect storm for crude oil right now," Cordier said. "We're looking at less demand and plenty of oil."
Cordier thinks oil prices will soon fall into the $60 range.
Jason Schenker, an economist at Wachovia Corp., agrees. Oil market fundamentals don't justify high oil prices, and an economic slowdown will reduce demand further, Schenker said. On top of that, he says the speculators who drove prices to record levels are selling.
[Associated Press;
By JOHN WILEN]
Copyright 2007 The Associated Press. All rights reserved. This
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