WTI oil price update: Storm threat pushes up prices

By Darrell Delamaide, Oilprice.com

The benchmark West Texas Intermediate futures contract settled at $78.86 a barrel on Friday, the first close above $78 since early May. Friday's gain put oil prices ahead just more than 2% for the week, after a closing price of $77.18 a week ago.

Further bullish news came in the forecast from AAA that 35 million US drivers would hit the road over the July 4 holiday weekend, a gain of 17% over last year, though still short of the 38 million drivers during the 2008 holiday.

These short-term demand and supply factors overshadowed some of the negative economic trends that depressed prices earlier in the week.

Oil prices tumbled nearly 2% on Wednesday on the announcement that new-home sales plunged a record 33% in May following the expiration of federal homebuyers' tax credit in April. The Federal Reserve also weighed in with a gloomy economic assessment after the meeting of the Federal Open Market Committee, which sees continued low interest rates in the face of a sluggish recovery.

Also on Wednesday, oil inventories registered an increase of 2 million barrels, contrary to a consensus forecast of a decline of 1.5 million barrels. Gasoline stocks declined by 800,000 barrels equivalent, but that was perceived as aneamic for the season.

However, a weaker dollar gave oil prices some support throughout the week, and futures markets shrugged off Friday's downward revision in first-quarter US GDP, to a 2.7% annual rate from the initial forecast of 3.2% for the period.

The potential Caribbean storm could develop over the weekend, hurricane forecasters said, and would force evacuation of some production sites if it moved toward the US Gulf coast. It could also interfere with efforts to contain the Deepwater Horizon oil spill.

The dollar was weaker across the board in the run-up to the G20 summit this weekend, including against the Chinese yuan, which gained half a percent against the US currency this week after China announced it was loosening the yuan's peg to the dollar. The Chinese move defused a possible issue at the summit, as US lawmakers threatened legislative action if China did not act to increase the value of its currency.