Oil: Prices rebound 3 per cent

NEW YORK - Oil prices bounced about 3 per cent higher on Friday after a two-week slide, as dealers eyed a new flare-up of tropical activity in the Caribbean that could threaten the oil-rich Gulf of Mexico.

The revaluation of China's yuan currency on Thursday was also deemed supportive of prices by strengthening the oil-thirsty nation's purchasing power, though analysts said the move would likely slow Chinese demand in the longer term by cooling its economic growth.

US light sweet crude oil futures OILOIL settled up $1.52 to $58.65 a barrel, but remained well below the all-time high of $62.10 on July 7. London Brent crude rose $1.86 to $57.58 a barrel.

The gains follow Thursday's nearly $1 decline after a US government report showed robust US oil stockpiles and the second set of blasts in London in as many weeks raised concerns about the impact on economic growth in the region.

"It stifles tourism," said Sam Tilley, head of research at brokerage Sucden UK Ltd. "You get a lot less people traveling. It increases that fear factor." Tropical Storm Franklin, the sixth named storm of the Atlantic hurricane season, formed over the Bahamas Thursday but was moving northwest into the northern Atlantic and was not expected to hit the US coast.

But a new tropical wave was brewing over the northwestern Caribbean Sea that could pose a threat to offshore oil facilities next week.

The NHC said early on Friday the system was expected to move west-northwest during the next day or two and will bring heavy rainfall to Mexico's Yucatan Peninsula and to nearby countries up to western Cuba.

"Some gradual development of this system is possible thereafter, when it is expected to emerge into the Gulf of Mexico," the NHC said.

Since June, the start of the Atlantic hurricane season, storms have shut just over 6 million barrels of US crude and 28 bcf of US gas production from the Gulf of Mexico, according to government figures.

Dealers also took a positive short-term view on China's decision on Thursday to revalue its currency and scrap its decades-old peg against the dollar.

"It should be supportive for all commodities, at least from China's perspective, obviously making them cheaper," said John Brady, an energy broker at ABN AMRO in New York.

The currency news followed Beijing's decision to raise regulated retail prices of petrol and diesel by around 6 per cent, a boost for refiners that could also encourage more domestic sales and curb exports of consumer fuels.

"The combination of the yuan revaluation and the domestic price increases should create more demand by Chinese refineries," said Tobias Merath at Credit Suisse. "It has a more positive effect on global demand." But analysts cautioned that any quick gain in imports would have to be weighed against the more lasting impact of a slowdown in growth from the world's No. 2 energy consumer.

US STOCKS HEALTHY

A US Energy Information report Wednesday showed oil inventories falling much less than expected last week and a sharp build in distillate stocks.

The ninth build in a row in distillate inventories helped soothe concerns that refiners will be hard pressed to meet peak winter demand in the northern hemisphere.

Stocks may slide more deeply this week after Hurricane Emily forced Mexico, a top supplier to the United States, to halt exports and shut in nearly 3 million barrels per day (bpd) of production for several days earlier this week.

- REUTERS