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Oil's Devastating Run Continues

By Richard Mably

06 October, 2004
Reuters

Oil prices extended record-setting highs above $51 for U.S. crude on Wednesday, fueled by the impact of Hurricane Ivan on U.S. winter inventories.

U.S. light crude (CLc1: Quote, Profile, Research) hit $51.48 a barrel before easing to $51.27 a barrel, up 18 cents on the day. London Brent (LCOc1: Quote, Profile, Research) , the benchmark for European imports, rose 17 cents to $47.30 a barrel after setting a record $47.60.

"Momentum can't be denied in this market and so we find ourselves now ... atop $50 perhaps headed for $60 absent some unforeseen catalyst for a wave of speculative selling," said Marshall Steeves of brokers Refco.

"With the political uncertainty of U.S. and Iraqi elections coming up, we doubt this situation will be reversed in the near future."

Oil has surged more than 55 percent since the start of the year, driven by the strongest demand growth in a generation and a thinning cushion of spare production capacity to cope with supply outages.

The focus of concern now is the United States. As of Tuesday, damage from mid-September's Hurricane Ivan had kept closed 453,000 barrels per day from the U.S. Gulf of Mexico -- equivalent to about half the output of small OPEC producer Indonesia.

The impact on U.S. domestic production has now surpassed the cumulative effects of storms in 2002, the last time the weather seriously affected oil and gas operations, the U.S. Minerals Management Service said.

With OPEC pumping near capacity, there is little leeway for any significant or lasting supply disruption, and the slow pace of output recovery in the U.S. Gulf has stoked fears of a potential winter supply crunch.

The Organization of the Petroleum Exporting Countries lifted production last month by 690,000 barrels a day to a 25-year-high of 30.15 million bpd, a Reuters survey found.

Most of the extra oil came from Iraq after repairs to pipelines damaged by sabotage attacks.
U.S. inventories of heating fuel are already running some 3.5 percent below last year and are expected to record another fall in weekly data out at 1430 GMT on Wednesday.
Analysts expect government data to show distillate stocks, which include heating oil, to have fallen by 900,000 barrels in the week to October 1. Crude stocks are expected to rise by 2.2 million barrels as a backlog of imports delayed by Ivan are delivered.

Other major oil consumers also are holding thin heating oil supplies, with world number three energy user Japan running a significant deficit against last year, data from that country's industry group showed on Wednesday.

Iraq, where saboteurs continue to target oil facilities, and Nigeria remain areas of concern for supply problems.

Nigerian blue collar oil union NUPENG threatened to shut down the oil sector on Sunday ahead of a general strike on Monday unless the government cuts retail fuel price or engages in dialogue, the Vanguard newspaper reported on Wednesday.

Nigerian oil unions have called strikes four times this year over rising fuel prices in the world's seventh largest exporter, but none so far have affected the country's 2.3 million barrels per day of output.

The strike threat follows last week's worries about a bid for autonomy by rebel militants in Nigeria's river Niger delta oil producing region.

 

 

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