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Oil hits record $63.99 on security threat

August 8, 2005

By Janet McBride

LONDON (Reuters) – Oil prices hit a new record high near
$64 on Monday after warnings of militant attacks in the world’s
biggest oil exporter Saudi Arabia and on worries about refinery
outages in the United States.

U.S. crude was up $1.49 at $63.80 a barrel at 1725
GMT after peaking at $63.99. London Brent crude was up
$1.49 at $62.56 a barrel after touching $62.70.

As the United States shut its diplomatic missions in Saudi
Arabia in response to threats, Britain warned that militants
were in the final stages of planning strikes in the kingdom.

“The latest security threats in Saudi Arabia, even though
they’re not directed at oil installations per se, and the
continuing refinery issues are having a supportive role,” said
Marshall Steeves, an analyst at Refco Group in New York.

Concerns over the Saudi security situation coincided with
news that another U.S. refinery had run into output problems,
adding to pressure on gasoline supplies in the world’s biggest
consumer during peak summer demand.

News that OPEC’s second largest producer Iran had resumed
its nuclear work, despite European Union warnings of possible
United Nations sanctions, further strained nerves.

In real terms, stripping out inflation, oil is still below
the $80 a barrel on average for the year after the 1979 Iranian
revolution.

But at an average of more than $53 for the year to date for
U.S. crude, prices are well above those during the 1974 Arab
oil embargo.

Encouraging dealers to push prices higher, energy inflation
has yet to have a significant impact on economic growth,
particularly in the world’s biggest consumers the United States
and China.

Naohiro Niimura, vice president at the derivatives division
of Mizuho Corporate Bank, said the world’s economy was coping
with oil prices that have charged almost 50 percent higher
since the start of this year.

“The (global) economy is tolerant to these high oil
prices,” he said.

“After the very strong pick-up in US growth data over the
past few weeks, we believe the risk of a sharp slowdown in
commodity demand looks negligible in the short term,” said
Barclays Capital in a report.

U.S. refineries have been hit by more than half a dozen
unplanned outages in the past few weeks as plants show the
strain of trying to keep up with two years of unexpectedly
strong demand growth after a decade of underinvestment.

A fire at the weekend shut a 200,000 barrel per day crude
unit at Sunoco Inc.’s Philadelphia oil refining
complex, a company official said on Monday.

Further storms in what is proving a severe Atlantic
hurricane season could knock out more U.S. output, analysts
said.

“People dare not price in the surpluses they see,” said
Deborah White, senior energy analyst at SG Commodities in
Paris, of comfortable U.S. crude inventories.




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