Oil prices fell on Friday after forecasters downgraded Tropical Storm Chris to a depression, easing worries it would damage oil and gas production platforms in the Gulf of Mexico.
US crude oil futures fell 70 cents to $74.76 a barrel, while London Brent crude shed 39 cents to $76.17 a barrel. Oil prices have been holding above $70 a barrel since mid-June, supported by violence in the Middle East and tensions between the United States and Iran.
The National Hurricane Centre said Chris, the third named storm of the 2006 Atlantic hurricane season, weakened in the Caribbean as it lumbered toward the Gulf of Mexico, home to a quarter of US oil production.
Oil traders said the downgrade triggered selling in the oil markets, which had been pumped up earlier in the week on expectations the storm could slash US oil output.
Energy companies operating in the region, still recovering from last year's record hurricane season, said Friday they were bracing for a possible restrengthening of Chris once it hit the Gulf's warmer waters next week.
"We're still monitoring it, and we can react very quickly, if we need to. We're approaching this storm with lessons learned from last year," said Neil Chapman, spokesman for oil giant BP Plc.
Last year's hurricanes temporarily knocked out a quarter of US crude and fuel production, toppling offshore platforms, destroying undersea pipelines, flooding coastal refineries and sending energy prices to record highs.
"What's clear is that whatever happens to Chris, it's a reminder of the market's sensitivity to hurricanes," said Eoin O'Callaghan of BNP Paribas.
As of June, about 12 percent of the Gulf of Mexico's 1.5 million barrels per day of crude oil production remained shut from the record 2005 storm season, along with 9 percent of the region's natural gas production of 10 billion cubic feet per day.
Adding pressure to prices, the number of US jobs grew by 113,000 in July, less than analyst had forecast, and the unemployment rate rose to 4.8 percent, the highest level since February.
"The US slowdown story is going to become more and more compelling for oil markets," said O'Callaghan.
US data a week ago showed the US economy grew at an annualised rate of 2.5 percent in the second quarter, well below analysts' forecasts.
But crude prices remain within reach of the record high over $78, driven by strong demand and geopolitical turmoil.
Sabotage in Iraq halted the recovery of exports from the north of the country, and in Nigeria at least 718,000 bpd of crude has been shut, mostly because of militant unrest.
Supplies of North Sea benchmark grades also have fallen to a record low because of heavy field maintenance, which helped to explain the unusual premium of Brent futures over US light sweet crude.
Israel's war against Hezbollah guerrillas in Lebanon has also raised concerns among analysts that the dispute between the West and oil producer Iran over its nuclear program could become more difficult to solve.
Iran funded and armed Hezbollah in the 1980s, but says its support now is only moral and political.
France and the United States were expected to hold more talks on a draft UN resolution aimed at ending the fighting in Lebanon.
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