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Oil Rises on Fear of Gulf Hurricane Impact

Oil rises in Friday trading as fears of the first hurricane of the season in the Gulf of Mexico intensify.

NEW YORK (

TheStreet

) -- The

BP

(BP) - Get BP p.l.c. Sponsored ADR Report

stock slide on Friday wasn't the only repercussion of heightened market attention to the start of hurricane season in the Gulf of Mexico.

Nymex crude oil futures for August rose $2.35, or 3.1%, to $78.86 a barrel, after the National Hurricane Center said that a low pressure system in the Caribbean had an 80% chance of turning into a major tropical storm this weekend. It was the biggest gain in a month for crude oil.

Earlier in the week, oil traded down as the government reported surprisingly high stockpiles. According to a weekly Energy Information Assessment released Wednesday, crude oil stockpiles rose by 2 million barrels for the week ending June 18, against forecasts that oil reserves would fall by 1.5 million barrels.

With the start of every hurricane season, the energy markets move on fears that production in the Gulf of Mexico will be shut down. Roughly 1.69 million barrels a day of U.S. oil production, or just over 31%, comes from the Gulf of Mexico, according to the Energy Department.

With a 48-hour window over the weekend for storm watchers monitoring the current system to see if it turns into a hurricane, energy traders and investors may spend more time as amateur meteorologists glued to weather.com this weekend than amateur golfers on the greens.

The offshore drilling stocks, already pummeled by the BP oil spill and controversial ban on offshore drilling -- overturned by a judge this week -- were rallying on Friday, with

Diamond Offshore

(DO) - Get Diamond Offshore Drilling, Inc. Report

,

Pride International

(PDE)

and

Noble

(NE) - Get Noble Corporation plc Report

up more than 3%.

The drilling stocks barely moved after U.S. District Judge Martin Feldman reversed the Obama administration ban on drilling, rallying for a matter of minutes before ending the day down on Wednesday.

>>Oil Drilling Losers

The major integrated oil stocks, including

Chevron

(CVX) - Get Chevron Corporation Report

,

Exxon Mobil

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(XOM) - Get Exxon Mobil Corporation Report

and

ConocoPhillips

(COP) - Get ConocoPhillips Report

, were trading in marginally negative territory towards the end of Friday's session.

The major oil tracking exchange-traded fund, the

United States Oil Fund

(USO) - Get United States Oil Fund LP Report

, was up 3.5% late on Friday. The

S&P GSCI Crude Oil Return Fund

(OIL) - Get iPath Series B S&P GSCI Crude Oil ETN Report

was also up close to 4% on Friday afternoon.

This time around, the typical hurricane impact fears have been intensified by the race against the clock for BP to get the oil spill under control before a major hurricane forces the oil company to abandon its current oil spill containment effort.

>>BP Stock Tanks as Storm Fears Rise

Even if the tropical storm now taking shape in the Caribbean misses the Gulf, hurricane experts are using the fact that tropical storms are forming this early in the season as an indication that it could be a more severe storm season than expected.

The current low pressure system located between Honduras and the Grand Cayman Island has an 80% chance of turning into Hurricane Alex, and is on a path to hit Mexico's Yucatan Peninsula.

In addition to the risk to BP's oil spill effort and Gulf oil production, the Gulf of Mexico is a major shipping channel with several key U.S. ports.

-Reported by Eric Rosenbaum in New York.

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