Oil Trades Near $78 as Threat From Tropical Storm Alex Eases

June 29 (Bloomberg) -- Crude oil traded near $78 a barrel in New York after declining on concerns slower economic growth may curb energy demand and skepticism that production from Gulf of Mexico wells will be disrupted by a tropical storm.

Oil dropped from a seven-week high yesterday as U.S. forecasters projected that Tropical Storm Alex will move across the southern Gulf and make landfall as a hurricane July 1 in Mexico. Group of 20 leaders responded to the European debt crisis during their weekend summit in Toronto with deficit- reduction targets.

“Most of the rhetoric from the G20 meeting is for continued fiscal austerity in the big developed economies and that means weaker growth going forward,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne. “What seems to have supported oil prices has been the news of storms in the Gulf, tightening some of the supply side of the market. Supply is looking more positive now.”

Crude oil for August delivery was at $78.24 a barrel, down 1 cent, in electronic trading on the New York Mercantile Exchange at 10:41 a.m. Sydney time. Yesterday, the contract dropped 61 cents, or 0.8 percent, to $78.25. Futures have dropped 1.5 percent since the start of the year.

The Gulf is home to about 30 percent of U.S. oil and 12 percent of its natural gas production. It also has seven of the 10 busiest U.S. ports, according to the Army Corps of Engineers. The region accounts for about half of U.S. refining capacity, according to the Energy Department.

Crude Supplies

“Oil was probably oversold towards the end of May, early June,” National Australia Bank’s Westmore said. “Now we’re getting to a point around the high $70s which is probably in line with what you’d expect, based on the fundamentals.”

U.S. crude oil supplies probably fell 900,000 barrels last week from 365.1 million the prior week, according to the median estimate of eight analysts surveyed by Bloomberg News before an Energy Department report tomorrow. It would be the first drop in three weeks. Gasoline inventories probably slipped 400,000 barrels from 217.6 million the prior week.

Oil also declined yesterday as the dollar strengthened against the euro for the first time in four days, curbing the appeal of commodities as an alternative investment. The dollar was little changed at $1.2284 at 9:48 a.m. in Sydney.

Consumer spending in the U.S. rose more than forecast in May, a sign households are gaining confidence in the recovery and the job market. Purchases advanced 0.2 percent after holding steady the previous month, the Commerce Department reported yesterday. The median estimate of 61 economists surveyed by Bloomberg News predicted a 0.1 percent increase in spending.

Brent crude for August delivery traded at $77.65 a barrel, up 6 cents, on the ICE exchange in London at 10:40 a.m. Sydney time. Yesterday, the contract fell 53 cents, or 0.7 percent, to settle at $77.59.