Updated from 11:48 a.m.

Oil continued to trace a mysterious path Friday, closing lower for a second straight day even as a Category 4 hurricane moved through the Gulf of Mexico.

August crude closed down $1.10 at $59.63 a barrel on Nymex. Gasoline futures held at $1.80 a gallon.

"I think the weather premium turned out to be a little overdone," said Michael Fitzpatrick, energy analyst at Fimat USA. "Nobody wants to be over-exposed either long or short, so we are seeing some lightening up before the weekend."

Oil also fell Thursday after terrorist attacks killed 50 people in London, raising concerns about travel and tourism. The selling was exacerbated by an Energy Department report showing a strong build in U.S. distillate inventories, which include heating oil and jet fuel. August crude ended Thursday down 55 cents to $60.73 a barrel.

Bulls temporarily re-emerged as forecasters said Hurricane Dennis was likely to hit the Gulf Coast on Sunday. Recent reports said at least 80 oil platforms and 11 rigs have been abandoned ahead of the approaching storm, stranding more than 200,000 barrels of oil and a billion cubic feet of natural gas.

"You are seeing Dennis playing out on the screens now," said Larry Goldstein at the Petroleum Industry Research Association earlier. "Since the world lost the cushions of spare production and spare refining capacity, every daily surprise moves the market by dollars rather than by nickels and dimes."

Traders have been concerned that prolonged stoppages of refining activity could cause shortages in winter products ahead of the fourth-quarter peak demand season.

Gasoline prices are currently trading near an all-time high of $1.80 a gallon, fueled by fears of refining disruptions. The average retail price for regular gasoline increased to $2.226 a gallon as of July 4, which is 33.1 cents higher than at this time last year. Diesel fuel, which is mostly used by trucks and trains, was up 1.2 cents last week to $2.348 a gallon, another all-time high.

The government said that jet fuel consumption grew by 5.5% compared with the same period last year, and distillates demand rose by 6%, indicating that economic growth has yet to be hampered by high oil prices.

PIRA's Goldstein maintains that high oil prices have already started taking their toll by slowing global economic growth. "The spectacular economic growth seen in 2004 has masked the income affect, which is the slowdown in demand caused by high prices," Goldstein said.

U.S. GDP growth is expected come down by nearly a percentage point in 2005, to 3.6%. Global economic growth is estimated to drop to 3.1% this year, from 4% in 2004. In terms of oil consumption, in 2004 global oil consumption grew by 3 million barrels a day, while the International Energy Association is predicting a 1.8 million barrel growth in 2005.

"High oil prices have already taken out between a half to three quarters of a percentage point of global growth," Goldstein said.

In company news, Lufkin Industries the oilfield service provider, said it expects to report second-quarter earnings of 68 cents to 72 cents a share, compared with earlier guidance of 45 to 55 cents a share. In the second quarter of 2004 the company earned 25 cents a share. Analysts' average estimate for this quarter's earnings is 48 cents a share, according to Thomson Financial. Shares of Lufkin soared $6.39, or 17.7%, to $42.40.

Gulf of Mexico oil and gas explorer W&T Offshore ( WTI - Get Report) said Friday it has completed the acquisition of oil and gas properties form Marathon Oil ( MRO - Get Report). They're currently producing approximately 1,300 gross barrels of oil and 6 million cubic feet of gas per day.

Tracy Krohn, W&T's CEO, said he believes the company will meet or exceed the high end of its second-quarter production guidance range of 18.3 billion to 19.3 billion cubic feet. He also maintained that the company is on target for its full year 2005 production guidance of 83.1 billion to 87.4 billion cubic feet.

As for Marathon Oil, the company said natural gas production for the second quarter will be approximately 350,000 barrels of oil equivalent a day, exceeding the previous guidance of 332,000 to 347,000 barrels of oil equivalent a day. Production sold during the second quarter is expected to be approximately 365,000 barrels of oil equivalent a day, the company said.

Marathon is also preparing to evacuate five platforms in the U.S. Gulf of Mexico ahead of Hurricane Dennis, Reuters reported.

Among the major oil producers shares were mixed. Exxon Mobil ( XOM - Get Report) fell 0.35%, Chevron ( CVX - Get Report) dropped 1%, ConocoPhillips ( COP) was little changed at $60.60, Royal Dutch/Shell lost 0.83%, and BP ( BP - Get Report) jumped 1.5%.