Oil falls toward $78 as traders eye Gulf storm

By ALEX KENNEDY Associated Press Writer

SINGAPORE (AP) - Oil prices dropped slightly to near $78 a barrel Monday in Asia as traders kept a close eye on damage a possible hurricane could cause rigs in the Gulf of Mexico this week.

Benchmark crude for August delivery was down 25 cents to $78.61 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract added $2.35 to settle at $78.86 on Friday.

Tropical depression Alex, which has pounded parts of Mexico and Central America, is expected to regain strength in the coming days as it moves over warmer waters in the Gulf and possibly become a hurricane heading toward Mexico's Caribbean coast, the U.S. National Hurricane Center in Miami said Saturday.

The storm will likely strike well away from the area where BP is trying to stop a massive oil leak, the center said.

"The lack of follow through from the bulls or the bears is understandable, hurricane activity in the Gulf Coast remains unknown," energy consultant The Schork Group said in a report.

Hurricane activity is one of the wild cards analysts are mulling at they try to predict oil prices for the rest of the year.

National Australia Bank expects oil to trade at $84 a barrel at the end of this year, less than the bank's previous forecast of $87. Strong crude demand from emerging countries should help offset weak consumption in developed economies, the bank said in a report.

In other Nymex trading in July contracts, heating oil fell 1.83 cents to $2.0939 a gallon, gasoline dropped 1.78 cents to $2.1500 a gallon and natural gas was down 5.6 cents at $4.805 per 1,000 cubic feet.

Brent crude fell 34 cents to $77.78 a barrel on the ICE futures exchange.