By Ben Sharples and Christian Schmollinger June 29 (Bloomberg) -- Crude oil fell below $78 a barrel in New York on concern slower economic growth may curb demand and as a tropical storm avoided Gulf of Mexico production areas. Oil dropped from a seven-week high yesterday as U.S. forecasters projected that Tropical Storm Alex will move across the southern Gulf and make landfall as a hurricane July 1 in Mexico. Group of 20 leaders responded to the European debt crisis during their weekend summit in Toronto with deficit- reduction targets. “Most of the rhetoric from the G20 meeting is for continued fiscal austerity in the big developed economies and that means weaker growth going forward,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne. “What seems to have supported oil prices has been the news of storms in the Gulf, tightening some of the supply side of the market. Supply is looking more positive now.” Oil for August delivery fell as much as 71 cents, or 0.9 percent, to $77.54 a barrel in electronic trading on the New York Mercantile Exchange. It was at $77.60 at 1:16 p.m. Singapore time. Yesterday, the contract dropped 61 cents, or 0.8 percent, to $78.25. Futures have declined 1.6 percent this year. Crude is heading for its first quarterly decline since the end of 2008 on signs that the economic recovery in developed countries is slowing. Crude Supplies Japan’s industrial production and household spending slipped in May and the unemployment rate unexpectedly increased, in signs that the recovery of the world’s second-largest economy may slow. “Oil was probably oversold towards the end of May, early June,” National Australia Bank’s Westmore said. “Now we’re getting to a point around the high $70s which is probably in line with what you’d expect, based on the fundamentals.” Tropical Storm Tropical Storm Alex, is “strengthening” with maximum sustained winds of 65 miles per hour, the U.S. National Hurricane Center said in an advisory. A hurricane warning has been issued for the coast of Texas south of Baffin Bay, it said. The system’s track should take it south of production areas. The Gulf is home to about 30 percent of U.S. oil and 12 percent of its natural gas production. It also has seven of the 10 busiest U.S. ports, according to the Army Corps of Engineers. The region accounts for about half of U.S. refining capacity, according to the Energy Department. BP Plc and Royal Dutch Shell Plc, the biggest oil producers in the Gulf, yesterday started evacuating crews from some offshore platforms in the region as a safety precaution. BP removed non-essential workers from its Atlantis, Mad Dog and Holstein oil-production platforms in the western part of the Gulf, company spokesman David Nicholas said. Output wasn’t halted, he said. London-based BP’s response to a record U.S. oil spill, located in northern and eastern parts of the Gulf, also is unaffected. “Even if production is ‘lost’ because of this, crude stocks are high, so we do not expect any crude price impact” Societe Generale analysts, led by Michael Wittner, said in a note yesterday. Brent crude for August delivery fell as much as 56 cents, or 0.7 percent, to $77.03 a barrel on the ICE exchange in London. It was at $77.04 at 1:13 p.m. Singapore time. Yesterday, the contract fell 53 cents, or 0.7 percent, to settle at $77.59. --With reporting by Mark Shenk in New York. Editors: Jane Lee, Ang Bee Lin. To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Christian Schmollinger in Singapore at christian.s@bloomberg.net To contact the editor responsible for this story: Clyde Russell in Singapore at crussell7@bloomberg.net

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