Oil Shortage Looms As Prices Soar Crude Costs Hit Shares While Gold Approaches Levels of 1988

CRUDE oil prices held at record levels of more than dollars-67 a barrel yesterday as traders fretted over a spate of US refinery glitches that could sharply reduce petrol supplies for the world’s largest economy.

Oil analysts said the refinery stoppages, an unusually active hurricane season in the United States and concerns over Iran’s decision to resume uranium conversion activities weighed heavily on speculators, pushing up crude prices.

“Demand is outstripping supply and this is the bullet point of the problem. The US refinery snags are adding fuel to the flames. Certainly, in the long term, prices will head higher, ” said John Brady, an energy broker at ABN AMRO in New York.

Traders feared that Tropical Storm Irene, which is approaching the US east coast, might intensify and inflict damage on offshore oil platforms and inland refineries.

The latest refinery problems include the shutdown of several units at ConocoPhillips’s 306,000-barrel-a-day Wood River, Illinois, refinery after a thunderstorm caused a power failure at the plant.

News that crude rose above dollars-67 a barrel helped depress shares prices in London and other European financial centres. Investors feared that robust oil prices will cut into corporate profits.

Shares in motor vehicle companies such as DaimlerChrysler and Peugeot weakened.

Meanwhile, gold is on track to reach its highest level since 1988 as fund money pours back into the precious metals market, sparked by dollar weakness and high oil prices.

With bullish sentiment unabated and crude prices hitting consecutive highs this week, analysts expect frontmonth crude contracts to test the dollars-70 a barrel threshold, possibly by next week.

West Texas light, sweet crude for September delivery set a fresh record, gaining dollars-1.30 to dollars-67.10 on the New York Mercantile Exchange.

Petrol was up 1.28 cents at dollars-1.9626 a gallon while heating oil was little changed at dollars-1.8990.

In London, Brent crude for September delivery was trading at dollars-65.76 a barrel, up 38 cents.

UK consumers are starting to feel the pinch at the pumps.

Petrol is now selling for more than 90p a litre and analysts said GBP1 a litre fuel is just around the corner.

Analysts said the demand for petrol, currently at its peak in the US summer driving season, was driving crude’s gains. Last week, US gasoline demand inctreased by 1.4-per cent from a year ago, according to government figures.

Coupled with new reports of refinery outages this week, traders fear US refiners, already running at near full capacities, are straining to satisfy the growing demand.

One problem driving prices upwards is a mismatch between the available grades of crude oil and refining technology. Because “sour” grades – such as those common in Saudi Arabia – are harder to refine into clean, low-sulphur fuels than “sweet” grades like West Texas Intermediate, refineries shun them, that pushes up the price of sweet benchmarks, such as WTI or North Sea Brent, which trade at hefty price premiums.

American refineries have also been running flat out this summer to meet demand, and some half-a-dozen big plants have suffered breakdowns, causing tightness in downstream markets, for petrol and other products. High downstream prices have in turn fed back into higher prices for crude.

Oil prices are about 50-per cent higher than a year ago, but they would need to surpass dollars-90 a barrel to exceed the inflationadjusted peak set in 1980.

The US Energy Department said on Wednesday that petrol inventories fell 2.1 million barrels to 203.1 million last week.