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Oil Prices Top $60 a Barrel on Supply Fears

Posted on: Wednesday, 6 July 2005, 09:00 CDT

BUDAPEST, Hungary - Crude oil prices rose above $60 a barrel Wednesday amid concerns about U.S. supply disruptions as a tropical storm forced oil companies to evacuate rigs in the Gulf of Mexico.

Light, sweet crude for August delivery on the New York Mercantile Exchange rose 62 cents to $60.21 a barrel in electronic trading by afternoon in Europe. The highest settlement price for the front-month crude futures contract on the Nymex was $60.54 per barrel on June 27.

Heating oil rose nearly two cents to $1.7500 a gallon while gasoline gained more than 3 cents to $1.7143.

At London's International Petroleum Exchange, August Brent futures rose 56 cents to $58.85 a barrel, just below the intraday high of $58.90.

Tropical Storm Cindy forced at least 23 petroleum production platforms and six drilling rigs to be evacuated, interrupting more than 3 percent of the Gulf of Mexico's normal oil and natural gas production.

While parts of the oil market appear to be amply supplied, there is still concern about reliable and timely delivery, the investment firm CSFB said in a report Wednesday.

Analysts said the storm was a reminder of the vulnerability of U.S. refineries, already operating at near capacity, to any supply disruptions caused by glitches.

Traders remembered last year's Hurricane Ivan, which forced oil platforms across the Gulf of Mexico to shut down, causing production bottlenecks and sending prices up as the Northern Hemisphere was gearing up for winter heating oil production.

"Memories are still strong of the severe and lasting damage done along the U.S. Gulf Coast by Hurricane Ivan last autumn, and the fear is that another heavy season of tropical storms will batter this key producing region again this year," said Energyintel analyst Tom Wallin in a research note.

Another storm, Dennis, is following close behind Tropical Storm Cindy.

Though neither is expected to develop into a hurricane, the prospect of consecutive storms hitting the region is keeping the market on edge.

"The market's strong price response to this weather threat again underscores how tightly balanced and vulnerable the entire energy supply system is," Wallin said.

Traders were also watching for Thursday's Department of Energy report from the U.S. for supply indications from the world's largest energy consumer. The market was expecting drops in U.S. crude and gasoline stocks with a build in distillate stocks, according to a survey carried out by Dow Jones Newswires.

Energy futures have been supported for almost two years by strong demand and worries about limited excess capacity in oil production and refining around the globe. Concerns about terrorism, the war in Iraq and labor strife in oil-producing nations such as Nigeria and Norway have also fed fear into the market.

The Organization of Petroleum Exporting Countries said last week that world oil demand will rise to 85.9 million barrels a day in the fourth quarter, or 150,000 barrels more than forecast a month earlier.

Year-to-date total product demand, including gasoline, distillate and jet fuel, is up 2.8 percent compared to the same period last year, according to a report by the U.S. Global Investors, a Texas-based fund management company.

Crude futures are about 50 percent above year ago levels, though still below the inflation-adjusted high above $90 a barrel reached in 1980.

Source: Associated Press/AP Online

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