Oil edges higher, Tropical Storm Chris loses steam

LONDON, Aug 4 (Reuters) Oil prices edged higher on Friday, recovering from modest losses the previous session when forecasters said they no longer expected Tropical Storm Chris to become the season's first hurricane.

London Brent crude rose 53 cents to .09 a barrel, while U.S. crude rose 19 cents to .65 a barrel by 1000 GMT.

The storm was expected on Monday to reach the Gulf of Mexico, where U.S. oil and gas facilities are based, but given that Chris has weakened to only a minimal tropical storm, the main concern of forecasters was the torrential rain it could dump in mountainous areas.

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 off-line.

''What's clear is that whatever happens to Tropical Storm Chris, it's a reminder of the market's sensitivity to hurricanes,'' said Eoin O'Callaghan of BNP Paribas.

Forecasters have said the 2006 hurricane season will probably not match 2005's record of 28 named storms, but will probably be more active than average.

POLITICAL RISK O'Callaghan said the market was also still drawing support from ''actual and hypothetical geopolitical risks.'' Real supply disruption has occurred in Iraq, where sabotage has halted the recovery of exports from the north of the country, and in Nigeria, where at least 718,000 barrels per day of crude has been shut in, mostly because of militant unrest.

Supplies of North Sea benchmark grades have also fallen to a record low because of heavy field maintenance, which helped to explain the unusual premium of Brent futures over U.S. light sweet crude.

Apart from in Iraq, the risk of supply disruption in the Middle East is for now theoretical.

Israel's war against Hizbollah guerrillas in Lebanon has raised concerns among analysts that the dispute between the West and oil producer Iran over its nuclear programme could become more difficult to solve.

Iran funded and armed Hizbollah 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 U.N. resolution aimed at ending the fighting in Lebanon.

Should all these geopolitical fears subside, some analysts are predicting weaker oil prices, particularly in view of a slow-down in the United States, the world's biggest oil consumer.

U.S. data a week ago showed the U.S. economy grew at an annualised rate of 2.5 percent in the second quarter, well below analysts' forecasts.

U.S. jobs data on Friday will provide another economic indicator.

''The U.S. slow-down story is going to become more and more compelling for oil markets,'' said O'Callaghan.

REUTERS PKS HS1709