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Storm Threat Lifts Crude Oil

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Storm Threat Lifts Crude Oil

July 22, 2008

Crude-oil futures rose for the first time in five sessions, as Dolly became the first tropical storm of the year to enter the Gulf of Mexico.

Light, sweet crude for August delivery settled $2.16, or 1.7%, higher at $131.04 a barrel on the New York Mercantile Exchange.

[Crude-Oil Futures]

Futures fell by 11% last week, on fears that the economy was in for a longer and deeper downturn than previously expected. Market participants may have been looking for an excuse to consolidate around $130 a barrel before attempting the next big move higher or lower.

“We’re locked in right here, we’re having trouble staying below $130,” said Peter Donovan, vice president at Vantage Trading.

So while the economic outlook remains gloomy, the market’s focus shifted to tropical storm Dolly, which was making its way into the Gulf of Mexico.

Dolly, which may strengthen into a hurricane by Tuesday, is on course to hit the southern Texas coast later in the week. Most oil from the U.S. portion of the Gulf of Mexico is produced farther north and east, off the coast of Louisiana, while Mexico’s offshore production is well southwest of the storm’s path. Royal Dutch Shell PLC and Chevron Corp. said they were evacuating some personnel from offshore facilities, but output wasn’t affected.

Still, Dolly was seen in the market as kicking off the peak of the Atlantic hurricane season, and it raised the prospect of more disruptive storms to come.

Futures also rose after the inconclusive outcome to the latest round of talks about Iran’s uranium enrichment program.

The weekend summit between the European Union and Iran ended in stalemate.

Neither Dolly nor Iran was seen snapping the market out of its weeklong funk, though Monday’s gains did provide a glimpse of the potential for oil prices to rise.

In other commodity markets:

CORN: Prices on the Chicago Board of Trade dropped as the weather in the key Midwestern corn-growing areas continued to be favorable for crop development. The market has erased the gains put in place after the June flooding in the U.S. Midwest. September corn touched a low of $5.84 a bushel, its lowest since April 1, before settling at $5.8925.

GOLD: A weaker U.S. dollar and higher oil prices led gold prices higher as investors stepped up purchases of the metal as a hedge against inflation. Nearby July gold on the Comex division of Nymex rose $5.80 to $963.10 a troy ounce. Most-active August futures added $5.70 to $963.70.

Write to Brian Baskin at [email protected]

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