Oil prices rose on Tuesday as concerns about a newly formed tropical storm in the Atlantic countered fresh troubles in credit markets.
U.S. crude settled 76 cents higher at $72.38 a barrel, erasing earlier losses. London Brent crude rose 28 cents to $70.51 a barrel.
Tropical Storm Dean formed in the Atlantic Ocean midway between Africa and the Caribbean on Tuesday, and forecasters said it could become the first Atlantic hurricane of 2007 later in the week.
While forecasters said the storm was days away from possible contact with land, energy markets were also eyeing a weather system in the south-central Gulf of Mexico that could become a tropical depression in the near future.
Roughly a third of U.S. domestic oil and gas production comes from the Gulf of Mexico, but output had yet to be affected by either storm.
Oil prices fell earlier in the day after Sentinel Management Group Inc., which oversees about $1.6 billion in assets, told clients it wanted to block redemptions to avoid a forced liquidation.
Sentinel sent a letter to clients saying it was going to ask the Commodity Futures Trading Commission for permission to halt withdrawals of client funds. The regulator said it had not received any such request and did not have the authority to grant it anyway.
This is obviously a concern, said Phil Flynn, analyst at Alaron Trading in Chicago. With these commodity redemptions, we don't know if it's a larger problem or just a symptom of the ongoing problem.
A credit squeeze in financial markets, triggered by problems in the U.S. subprime mortgage market, has sparked widespread selling this month across all assets. The sell off helped to send the price of U.S. crude down from a record high of $78.77 on August 1.
Financial services stocks declined on Tuesday on the latest signs of a deteriorating credit environment.
Analysts were also waiting to see if hedge fund investors would take their money back this week. Investors have to notify their managers by August 15 to pull money out at the end of the third quarter.
The Organization of Petroleum Exporting Countries warned on Tuesday that a slowing U.S. economy and the subprime mortgage crisis could cut oil consumption this year.
The more bearish economic trend which has materialized in recent weeks could negatively impact demand growth in the second half of the year, OPEC said in a monthly report.
But some analysts contend oil supplies will have trouble keeping up with demand growth later this year unless OPEC decides to raise output when it meets next month.
Lehman Brothers said last week it expected oil prices to remain above $60 this year, while Goldman Sachs said the 9 percent fall from record highs represented a chance to buy.
A Reuters poll of analysts ahead of weekly U.S. government inventory data on Wednesday forecast it would show a decline of 2.3 million barrels for crude for the week through August 10, an increase of 1.2 million barrels in distillates and a decline of 900,000 barrels in gasoline stocks.