London: Crude oil last week rose the most in two weeks on concern the first tropical storm of the hurricane season may form and disrupt production in the Gulf of Mexico. The gain accelerated as the dollar weakened against the euro.

Oil climbed 3.1 per cent after the National Hurricane Centre said that a low pressure area located in the Caribbean off Honduras and Grand Cayman has an 80 per cent chance of developing into a tropical cyclone this weekend and may head into the Gulf.

"We always see knee-jerk reactions when storms enter the Gulf, and there are concerns that storms will damage either offshore or onshore infrastructure," said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut.

Crude for August delivery increased $2.35 to settle at $78.86 (Dh289) a barrel on the New York Mercantile Exchange. It was the biggest gain since June 9. The contract increased 0.8 per cent last week.

The low pressure area between the northern coast of Honduras and Grand Cayman is likely to become a tropical cyclone, the hurricane centre in Miami said on Friday. About 31 per cent, or 1.69 million barrels a day, of US oil production comes from federal waters in the Gulf of Mexico, according to the Energy Department.

The National Oceanic and Atmospheric Administration predicted an active hurricane season with 14 to 23 named storms. Eight to 14 of those storms are expected to become hurricanes and three to seven are likely to become major systems with winds of 178 kilometres per hour.

Storms this year may cut 26 million barrels of oil production in the Gulf, according to Energy Department estimates.

The premium of Nymex crude futures over Brent oil on the ICE Futures Europe exchange rose to 74 cents a barrel, the highest level since June 15.

"The storm forecast is the main reason why the premium picked up quite a bit today," said Flynn. "Nymex is getting back to its normal premium to the Brent crude."

Crude forecast

Analysts surveyed by Bloomberg News were split over whether crude oil prices will rise or fall this week amid mixed economic reports and ample stockpiles.

Sixteen of 47 analysts, or 34 per cent, forecast crude will advance through July 2. Sixteen more respondents predicted that futures will decline. Fifteen said there will be little change. Last week, 52 per cent of analysts expected an increase.

Orders for computers and machinery climbed in May, showing gains in global business investment and demand that will give the US economy a lift, a Commerce Department report on Friday showed.

On June 23 a government report showed that sales of new homes in the US declined in May to a record low as a tax credit expired.