Oil Jumps Ahead of Weekend

Terrorism in London discourages the shorts.
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Updated from 1:12 p.m. EDT

Oil reversed a two-session downtrend and rose Friday, as traders went long for the weekend in the wake of the London bombings.

Crude for September delivery closed up $1.52 to $58.65 a barrel on Nymex. Gasoline futures rose 5 cents to $1.72 a gallon.

Prices dropped Thursday after China loosened the yuan's peg against the dollar. Some traders evidently believe a higher currency could crimp the country's economic prospects and sap energy demand.

On the flip side, a stronger domestic currency would make oil cheaper in China, which could stimulate buying, at least in the near term.

"The 2.1% revaluation of the

yuan against the

dollar and the move to a currency basket will have a small net positive effect on oil demand," said Francisco Blanch, oil analyst at Merrill Lynch, in a note to investors. "In recent months, Chinese oil imports have been distorted by petroleum product price-caps."

These caps have squeezed refinery margins and forced some Chinese refiners to cut refinery runs and, in some cases, sell crude oil back into the market.

Blanch added that a "

yuan revaluation should contribute to improved refinery margins in China, likely translating into higher near-term crude oil demand from refiners."

The main factor in trading Friday, however, was the ongoing confrontation with terrorism in London. Oil has occasionally risen in times of geopolitical crisis and concerns about the coming weekend discouraged shorts.

News reports of a man being shot by London police in a subway station triggered a brief rally in oil prices Friday morning.

The Philadelphia Oil Service Sector Index jumped 3.3% after

Schlumberger

(SLB) - Get Report

and

Halliburton

(HAL) - Get Report

delivered strong second-quarter earnings reports. Schlumberger, which said its profit rose 36% from a year ago, gained $4.29, or 5.5%, to $82.25. Halliburton, which reported a profitable quarter compared with a loss in the second quarter of 2004, surged $4.65, or 9.5%, to $53.35.

GlobalSantaFe

(GSF)

rose 4.5% to $44.94, and

Transocean

(RIG) - Get Report

rose 6.2% to $58.75 on the sector's strength.

Elsewhere,

Peabody Energy

(BTU) - Get Report

, the biggest U.S. producer of coal, said Thursday its board increased its quarterly dividend for the third time in two years, this time by 27%. The board also authorized a stock repurchase program covering up to 5% of Peabody's shares outstanding.

"The dividend increase and share repurchase authorization offer the flexibility to provide added shareholder value, while we continue to implement our many growth initiatives," said Gregory Boyce, Peabody's president and CEO, in a statement. Shares rose $2.40, or 3.8%, to $65.19.

Among the major oil producers, shares were mostly trading higher, propped up by surging oil prices. The Amex Oil Index rose 2.4%.

Exxon Mobil

(XOM) - Get Report

climbed 2.5%,

Chevron

(CVX) - Get Report

rose 1.7%,

ConocoPhillips

(COP) - Get Report

gained 2.1%,

Royal Dutch/Shell

(RD)

, dropped 0.3% and

BP

(BP) - Get Report

increased 1.3%.