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Oil Rises on Tropical Storm Worries

Oil rose on Friday as investors kept watch on a gathering storm in the Atlantic Ocean and took stock of declining fuel inventories in the world's top consumer.

Surging equities also lent support, with investors betting the U.S. government and central bank will act to ease a crisis in subprime -- or poor credit quality -- mortgages.

Oil has held up well compared to other commodities, but the U.S. benchmark has fallen from an all-time high of $78.77 on Aug. 1 as worries mount that a global credit crunch will take its toll on the wider economy and erode oil demand.

U.S. light, sweet crude for October delivery rose, as did London Brent .

Analysts said any downside would also be checked by short-covering ahead of the U.S. Labor Day holiday weekend.

The U.S. National Hurricane Center said in an update that a well-organized tropical wave in the Atlantic Ocean about 250 miles (400 km) east of the Windward Islands could form into a tropical depression later on Friday.

"Given some lingering weather concerns and the fact that we are heading into a long weekend, we could end up on a slightly firmer note," a report from MF Global said.

Oil eased on Thursday after a surge of $1.78 the previous day sparked by an unexpectedly steep drop in U.S. crude and gasoline stockpiles last week.

Prices may further strengthen as refineries in the U.S. Midwest enter heavy maintenance that could tighten products such as transport fuels.

"We expect heating oil and gasoline prices to remain well supported, as overall market conditions in products have tightened considerably," a Barclays Capital report said.

"Demand remains solid, refinery production limited, and inventory levels low, all of which should bode well for prices."

Officials from the Organization of the Petroleum Exporting Countries say shortfalls of refined products are not their problem and the world is amply supplied with crude.

The 12 exporters, which agreed last year to cut 1.7 million barrels per day from supplies, meet in Vienna on Sept. 11 to chart output policy. They are expected to hold output steady.