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Oil holds below $77, eyes equities, hurricanes

business Updated: Jul 16, 2010 10:36 IST

Oil steadied below $77 on Friday, shedding early gains as stock markets in Asia fell following disappointing US economic indicators, while potential Atlantic storms provided some support to prices.

US industrial production slowed sharply last month, while manufacturing output snapped a three-month streak of gains, a report showed on Thursday, capping Wall Street gains.

Japan's Nikkei average shed 0.7 percent on Friday.

But new US claims for jobless benefits tumbled to a near two-year low last week.

Two oceanic weather systems, one in the central Caribbean and the other one in the mid-Atlantic, had a 10 percent chance of strengthening into tropical cyclones over the next 48 hours, according to the US National Hurricane Center. Both were days away from potentially entering the oil-rich Gulf of Mexico.

"Given that the economic outlook is mixed, the key will be the weather as we head into the hurricane season," said Jonathan Barratt, managing director at Commodity Broking Services in Sydney, adding that prices could reach $80 as soon as next week. US crude for August edged 5 cents higher to $76.67 a barrel at 0252 GMT, after sliding more than 0.5 percent on Thursday. It was still heading for a second straight weekly gain.

Prices have traded in a range between $71 and $80 for almost six weeks as volatility related to the European debt crisis dwindled. Over the year, they have stayed within a $23 range, hitting a 19-month peak above $87 and a trough below $65, both in May. ICE Brent for September, the front-month contract after August expired on Thursday, gained 1 cent to $76.10.

Oil on Thursady fell after China, which is leading global demand growth as the world's second-largest oil consumer, said annual gross domestic product growth moderated to 10.3 percent in the second quarter from 11.9 percent in the first quarter.

"The slowdown in China's economy would have been the telltale sign for the price to move lower, but the market has absorbed it," Barratt said. "Given the state of the economy, inventories will continue to be drawn."

US crude inventories fell about 5 million barrels for the second week in a row last week, government statistics showed two days ago.

But Energy industry data provider Genscape on Thursday said crude stockpiles at the key US Cushing, Oklahoma oil hub, the pricing point for crude trading on the New York Mercantile Exchange, rose in the week to July 13 to 39.93 million barrels.

BP Plc said on Thursday it stopped the flow of oil into the Gulf of Mexico from its deep-sea well for the first time since it ruptured in April, prompting hope that the leak can be plugged for good.

The US Congress on Thursday approved the broadest overhaul of financial rules since the Great Depression and sent it to President Barack Obama to sign into law.