Oil prices rise to new record, approach $64 a barrel

Monday, August 8th 2005, 10:16 am
By: News On 6

WASHINGTON (AP) _ Oil prices jumped to a new high near $64 a barrel on Monday, reflecting the market's persistent uneasiness about strong demand, tight supplies and a slew of threats to output around the globe.

Traders pinned the latest rally on security concerns in Saudi Arabia, refinery snags in the United States and the continued rise of gasoline consumption in spite of soaring pump prices.

The average nationwide price for regular unleaded gasoline is $2.34 a gallon, or 46 cents above last year, according to the Oil Price Information Service of Wall, N.J. Still, government data show that gasoline consumption is up almost 1 percent at 9.1 million barrels a day through July, compared with last year.

Oil analyst Marshall Steeves at New York-based brokerage Refco Group Inc. said oil and gasoline prices were likely to keep rising until there were signs of a significant dropoff in demand, or a sharp slowdown in economic growth. ``We're clearly not there yet,'' he said.

Light, sweet crude for September delivery rose to a high of $63.99 a barrel on the New York Mercantile Exchange before falling back a bit to $63.85, up $1.54.

Prices had settled at $62.31 a barrel on Friday, a record close for crude since Nymex trading began in 1983.

``The market clearly has the jitters,'' said Deborah White, energy analyst at SG Securities in Paris.

Broadly speaking, those jitters are tied to worldwide consumption, which is expected to average more than 84 million barrels a day in 2005, leaving only about 1.5 million barrels a day of spare production capacity that could be called upon in an emergency to offset a prolonged supply disruption.

Given such a slim margin for error in the supply chain, a large premium has been priced into every barrel of oil sold on futures markets. This premium takes into account the possibility of production outages stemming from hurricanes, terrorism and labor strife around the globe.

Several factors put the market on edge Monday:

_ The U.S. Embassy and consulates in Saudi Arabia were closed after authorities announced Sunday a security threat against U.S. government buildings inside the world's largest petroleum-producing country.

_ Iran, OPEC's second biggest player behind Saudi Arabia, resumed uranium conversion activities at its Isfahan nuclear facility Monday, a step that Europeans and the United States have warned would prompt them to seek U.N. sanctions against the Tehran regime.

_ A fire broke out at a Sunoco Inc.'s refinery in Philadelphia over the weekend. This followed a string of refinery fires and other snags over the past two weeks that have not severely diminished supply, but have nonetheless made oil traders nervous. ``The fear factor is alive and well,'' said oil analyst Jim Burkhard of Cambridge Energy Research Associates.

_ Suspected rebels launched renewed attacks overnight on pipelines in eastern India, leaving oil operations in the remote region in critical shape, a top oil official said Monday.

The market has also kept a close eye on tropical storms in the Gulf of Mexico, fearing a repeat of last year's Hurricane Ivan, which damaged oil facilities and caused output in the region to drop for several months.

Oil broker Tom Bentz of New York-based BNP Paribas Commodity Futures said there was no single event on which Monday's rally could be attributed. ``We've just got a continuation of the uptrend here,'' he said. ``And there's no sign that it will be stopping anytime soon.''

In other Nymex trading, gasoline futures gained 3.48 cents to $1.867 a gallon while heating oil rose 5.68 cents to $1.788 a gallon.

September Brent crude futures on London's International Petroleum Exchange gained $1.14 to $63.45 a barrel, just off the record of $63.60.