Oil rises above $79 on equity gains, higher risk appetite

                                
 * Asian shares, euro rise after stress tests
                                
 * Tropical Storm Bonnie fades, disrupts U.S. Gulf oil
output
                                
 * Nearly half Gulf of Mexico oil production shut
                                
 By Fayen Wong
                                
 PERTH, July 26 (Reuters) - Oil nudged up to just above $79
on Monday, supported by improved risk appetite and expectations
that a forecast severe Atlantic hurricane season could bring
further disruptions to oil and gas operations in the U.S. Gulf
of Mexico.
                                
 Asian shares rose and the euro extended gains on Monday as
solid U.S. corporate earnings and strong euro zone data offset
growing scepticism that a stress test on European banks were
not strict enough. [ID:nSGE66P00G]
                                
 U.S. crude for September delivery <CLc1> inched up 16 cents
to $79.14 a barrel by 0127 GMT. The contract settled down 32
cents at $78.98 a barrel on Friday, after reaching an intra-day
high of $79.60 -- the highest since May 6.
                                
 London Brent crude <LCOc1> inched up 26 cents to $77.71.
                                
 "Results of the stress test were generally well-received by
the market and it helped to provide a little more certainty
since there were no real surprises," said Toby Hassall, chief
commodities analyst at CWA Global Markets Pty Ltd.
                                
 Only seven of 91 banks -- five small Spanish banks,
Germany's state-rescued Hypo Real Estate [HRXGe.UL] and
Greece's ATEbank <AGBr.AT> -- failed the tests, for an overall
capital shortfall of $3.5 billion euros. [ID:nLDE66M1T3]
[ID:nLDE66M1A2]
                                
 "On the weather front, even though there is no specific
weather threat at this point in time, we have an outlook of a
more active than normal hurricane season, so that's offering
support to oil prices, which is seeing a weather premium,"
Hassall said.
                                
 Energy companies were scrambling to restore offshore oil
and gas output but almost 50 percent of daily crude production
in U.S.-regulated areas of the Gulf of Mexico was shut as of
Sunday due to Tropical Depression Bonnie, the U.S. government
said. [ID:nN25136592]
                                
 Forecasters said the 2010 Atlantic hurricane season, which
runs from June 1 through Nov. 30, could be the worst since
2005, when Hurricanes Katrina, Rita, and Wilma caused havoc in
the Gulf Coast, damaging oil rigs and refineries and forcing
sharp cuts in production.
                                
 For more on Europe's bank stress tests, see:
[ID:nLDE6601T6]     For more on oil technicals, click on
[ID:nSGE66P00H]
                                
 In China, Dalian Port Co. <2880.HK> has resumed operations
at two of its oil berths and its main 300,000 tonnage berth is
expected to reopen soon, the company said on Sunday, after a
fire at the port a week ago shut the berths down.
                                
 Analysts said oil prices will continue to be driven by
macroeconomic sentiments in the short-term, with investors
focusing on the pace and extent of a slowdown in the Chinese
economy as well as the speed of economic recovery in the United
States, the world's largest energy consumer.
                                
 On this week's outlook, strategists said Wall Street is on
the cusp of a breakout in U.S. stocks, but it will need another
spate of convincing earnings reports to feed the rally that
sprouted at the end of last week, analysts said. [ID:nN2397658]
                                
 The U.S. economy is not likely to slip back into recession
but letting tax cuts for the wealthiest Americans expire is
necessary to show commitment to cutting budget deficits,
Treasury Secretary Timothy Geithner said on Sunday.
[ID:nN25186690]
                                
 In a sign of increased bullishness on oil prices, open
interest positions increased at the September $85 and $90 call
options on Friday versus a week ago as crude prices rose to
near $80 a barrel before ending the session slightly lower.
[ID:nN23626523]
                                
 Money managers also increased net long crude oil positions
on the New York Mercantile Exchange to 90,472 from 85,962 in
the week through July 20, the Commodity Futures Trading
Commission said on Friday. [ID:nN23178325]
                                
 Separately, BP Plc <BP.L><BP.N> decided Chief Executive
Tony Hayward should step down over his handling of the Gulf of
Mexico oil spill and his departure is likely to be announced in
the next 36 hours, sources close to the company said on Sunday.
[ID:nN25157641]
                                
 As the boardroom drama intensified, clearing weather in the
spill zone allowed work to resume on drilling a relief well to
plug the leak that has been spewing oil into the Gulf for some
three months.
 (Reporting by Fayen Wong; Editing by Ed Lane)