petroleumworld

New York oil prices rallied close to 80 dollars on Friday as Tropical Storm Bonnie swirled towards the Gulf of Mexico but pulled back after stress test results on Europe's banks were released.

New York's main contract, light sweet crude for delivery in September, hit 79.60 dollars per barrel, a level last seen on May 5, before ending 32 cents lower to 78.98 dollars.

London's Brent North Sea crude for September meanwhile weakened 37 cents to settle at 77.45 dollars.

"With Bonnie looking to be more like the Jean-Claude Van Damme of storms the crude complex gave back some of its gains from yesterday, albeit only slightly so," analysts at BMO Capital Markets said in a report.

"With the euro continuing to pound the US dollar and equity markets' continuing to rally, the drop in crude was tempered considerably, and 80 dollars may not be a pipe dream after all," they said.

The main focus Friday turned to Bonnie, which moved toward the oil-producing region of the Gulf of Mexico, and the eurozone banks stress tests, said Sucden analyst Myrto Sokou in London.

Crews working on the huge BP oil spill were evacuated on Friday, prolonging the region's environmental and economic nightmare.

The cap in place for a week on the ruptured well will remain but efforts to complete relief wells for a permanent fix were set back by the evacuation as Bonnie churned toward the area.

It is expected to hit the area on Saturday.

"If Bonnie continues to strengthen, continuing worries about a potential disruption of oil operations in the Gulf of Mexico are likely to move crude oil prices higher to test the 80-dollar area," Sokou said.

The European bank stress test results Friday also weighed on markets as many analysts questioned the rigor of the assessments.

Seven banks, mainly in Spain, failed the tests out of 91 banks assessed for resistance to economic upheaval.

Neil MacKinnon, an economist at VTB Capital in London, said in a note that it "looks like a whitewash and the initial reaction is one of scepticism on the part of the markets."

ING bank analyst Chris Turner said the CEBS announcement "does not appear to have uncovered any 'skeletons in the closet,'" but added: "Whether it goes far enough remains to be seen."

The European single currency climbed slightly against the dollar Friday.

A weaker dollar tends to boost dollar-priced oil because the commodity becomes cheaper for buyers using stronger currencies, which in turn tends to encourage demand and lift prices.

Story from AFP
AFP 07/23/2010 22:27

Petroleumworld welcomes your feedback and comments,
share your thoughts on this article, your feedback is important to us!

We invite all our readers to share with us
their views and comments about this article.

By using this link, you agree to allow PW
to publish your comments on our letters page.

Any question or suggestions, please write to: editor@petroleumworld.com

Best Viewed with IE 5.01+
Windows NT 4.0, '95, '98,ME,XP, Vista, Windows 7+/ 800x600 pixels