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Oil Prices Rise Amid Supply Fears, Drivers' Demand

Posted on: Tuesday, 30 August 2005, 03:01 CDT

Oil prices zoomed higher Wednesday, touching a new high of $65 a barrel, with buyers focused on refinery snags, shrinking U.S. inventories of gasoline and motorists' growing thirst for fuel despite record-high costs.

The latest rally - crude futures have risen 14 percent in three weeks - highlights just how nervous the market has become to output threats. It doesn't seem to matter, analysts said, that the country has enough fuel in inventory to offset routine supply disruptions.

The heightened sensitivity comes amid strong demand in the United States and China, the world's top consuming nations, where high prices have tempered rising fuel consumption only slightly.

"People talked about $60 crude slowing economies around the world. But here in the U.S., (Federal Reserve Chairman) Alan Greenspan is telling us the economy is doing great and getting stronger," said James Cordier, the president of Liberty Trading Group in Tampa, Fla. "It bodes well for crude testing the $70 range."

Even so, Mr. Cordier said, he has been stunned by the recent run- up in oil and gasoline prices and the apparent lack of response from motorists. Gasoline prices averaged $2.37 a gallon nationwide last week, up 49 cents from last year. Demand picked up by 1.4 percent from a year ago, according to government data.

He said prices at the pump might continue climbing "until consumers are crying uncle, which they're not."

Light sweet crude for September delivery climbed as high as $65 a barrel on the New York Mercantile Exchange. The contract settled $1.83 higher at $64.90 a barrel, the highest level since Nymex trading began in 1983.

In other Nymex trading, gasoline futures jumped 7.39 cents to $1.8963 a gallon.

Though oil prices are about 40 percent higher than a year ago, they would need to surpass $90 a barrel to exceed the inflation- adjusted peak set in 1980. That - and the fact that the U.S. economy burns fuel more efficiently than it did 25 years ago - helps explain why the country's financial engine is still going strong, analysts said.

Source: Augusta Chronicle, The

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