Oil dips as storm weakens, eyes US interest rates

SINGAPORE, Aug 4 (Reuters) Oil edged down on Friday as fears dissipated over a storm in the Gulf of Mexico, though prices stayed above a barrel on the potential for supply disruptions in the Middle East.

U.S. light crude for September delivery lost 22 cents to .24 a barrel by 0658 GMT, extending Thursday's 35-cent loss. London ICE Brent crude shed 10 cents to .46 a barrel.

Prices eased as a weakened Tropical Storm Chris posed less of a threat to U.S. oil and gas production in the Gulf of Mexico, the Miami-based National Hurricane Center said.

''Oil prices are now likely to remain mid-70 something for now.

Markets simply have to wait for the next upset,'' said Tobin Gorey of the Commonwealth Bank of Australia.

Another noted U.S. hurricane research team has reduced its Atlantic storm forecast from nine to seven hurricanes, with only three being described as ''intense'', down from five in the earlier forecast.

The revised forecast, by the Colorado State University team in its August report, was due to a cooler tropical Atlantic Ocean and a warming eastern Pacific.

Hurricanes last year shut in a quarter of U.S. crude and fuel output and sent oil to then-record highs. Around 12 percent of the 1.5 million barrel-per-day (bpd) of U.S. oil output in the Gulf of Mexico remains offline.

STILL BULLISH However, analysts are generally bullish over the rest of the third quarter, citing the volatile situation in Lebanon and Iran, as well as expectations that the United States is unlikely to raise interest rates ahead of a review on employment data by the Federal Reserve.

''Some funds withdrew their money from the commodities market last night and are probably waiting on the Fed review before deciding whether to go back in,'' said Naohiro Niimura of Tokyo's Mizuho Bank.

''The expectation is that the Fed will make a strong comment but they have been tolerant of inflation and is unlikely to raise interest rates. That should encourage the funds to return to the market.'' The U.S. economy appears to be decelerating as business activity in the services sector in July and new orders at American factories were unexpectedly weak, according to reports.

Federal Reserve policy makers are expected to weigh these reports and the July employment data on Friday before making a decision on interest rates when they meet on Tuesday.

In the Middle East, Israel's army prepared on Friday for a possible push deeper into southern Lebanon to drive out Hizbollah, which threatened to launch rockets further into Israel if central Beirut is bombed, as world powers struggled to agree on a U.N.

resolution for a ceasefire.

An Iranian official warned oil prices could hit 0 if international sanctions were imposed on his country in its nuclear dispute with the West, though analysts shrugged off the remark as sabre rattling.

Saudi Arabia, the world's biggest crude exporter, believes oil should not be used as a weapon even if the conflict between Israel and Hizbollah escalates, its foreign minister said this week.

EUTERS CS PM1342