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Record oil nears $62

July 7, 2005

LONDON (Reuters) – Oil prices surged to a new record near
$62 on Thursday as the year’s first Atlantic hurricane
threatened U.S. Gulf production and refining, stoking fears
about pre-winter stock-building.

U.S. light crude for August delivery by 0850 GMT set
a new high at $61.94, up 66 cents. Brent crude in London
climbed 65 cents to $60.50 a barrel, also a new record.

Oil prices are up a hefty 46 percent from the start of the
year as traders fear refiners are ill-prepared to meet peak
seasonal demand this winter, especially for distillate fuels
diesel and heating oil.

Storms in the U.S. Gulf of Mexico compounded those
anxieties by threatening both crude production and refinery
operations, impairing oil companies’ ability to build up
supplies.

Tropical Storm Dennis was upgraded on Wednesday to become
the season’s first official hurricane as it moved through the
central Caribbean, putting it on track for the oil and natural
gas fields off the Gulf Coast on Sunday, the National Hurricane
Center said.

Cindy forced energy companies to shut in some 190,000
barrels per day (bpd) of output and some refinery units to
close, officials and the U.S. government said.

The unusually early appearance of four named storms backed
up forecasts of an active Atlantic hurricane season and evoked
memories of last September’s Ivan, which knocked out 45 million
barrels of Gulf output and helped oil prices climb past $50 a
barrel for the first time.

“A hurricane should have this kind of impact,” said Tetsu
Emori, chief commodities strategist at Mitsui Bussan Futures.
“There are no bearish factors in the market. It is very
difficult to see prices going down quickly.”

REFINERS HARD PRESSED

Oil prices have rocketed despite the absence of any sudden
supply outages in the first half of this year, with speculators
focused on prospects for a tight fourth quarter.

“Traders are betting this run of luck wouldn’t continue for
the northern winter build-up — so Hurricane Dennis is, in a
sense, part of the script,” Tobin Gorey, commodity analyst for
the Commonwealth Bank of Australia, said in a note.

Speculators are guessing that refiners will be hard pressed
to build up enough inventories of distillate fuels heating oil
and diesel before the winter.

In June, U.S. distillates demand averaged an unusually
strong 5.7 percent more than the same period last year and
gasoline demand was 2 percent higher, U.S. data showed.

Although U.S. crude oil inventories are healthy at near
their highest in six years, distillate stocks are in the lower
half of their normal range for this time of year.

U.S. data due later on Thursday is forecast to show crude
stocks down 1.1 million barrels but distillates inventories up
1.3 million barrels as refiners ramp up runs, analysts polled
by Reuters said on Wednesday.

OPEC should wait and see what prices do before reviving
discussion of a second production hike of 500,000 bpd, Iranian
Oil Minister Bijan Zanganeh said on Wednesday.

OPEC President Sheikh Ahmad al-Fahd al-Sabah said last week
the cartel would consider raising formal output limits if
prices topped $60 again.

Analysts say more crude production is unlikely to cool a
market that is rising due to refinery bottlenecks.




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