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August brings record highs in oil prices Original Source Link: (May no longer be active)
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Oil Prices Rise to $65 a Barrel
Aug 10, 3:19 PM (ET)
By BRAD FOSS
Oil prices zoomed higher Wednesday, touching a new high of $65 a barrel, with buyers focused on refinery snags and shrinking U.S. inventories of gasoline.
The latest rally - crude futures have risen 14 percent in three weeks - highlights just how nervous the market has become to just about any threat to output, even though analysts say the country has adequate levels of 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 only tempered rising fuel consumption 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, president of Liberty Trading Group in Tampa, Fla. "It bodes well for crude testing the $70 range."
Even so, Cordier said he has been stunned by the recent runup in oil and gasoline prices and the lack of any response from motorists. Gasoline prices averaged $2.37 a gallon nationwide last week, while demand picked up by 1.4 percent from a year ago, according to the government data.
Cordier said prices at the pump may continue climbing "until consumers are crying uncle, which they're not."
Energy markets have been extremely jumpy about a spate of refinery outages in recent weeks, though analysts and industry officials said refinery snags are not out of the ordinary for this time of year, when plants run hard to meet peak gasoline demand.
"Hiccups are an unfortunate reality of operating refineries," said Bryan Caviness, who follows the industry for Fitch Ratings in Chicago.
"There have not been any more than what you typically see, but the impact (on prices) has certainly been greater than what you've seen in years past."
The transition of power in Saudi Arabia last week following the death of King Fahd has also unnerved markets, as did the security-related closure of the U.S. embassy earlier this week in the world's largest oil-producing nation.
Light sweet crude for September delivery climbed $1.93 to $65 a barrel in afternoon trading on the New York Mercantile Exchange, the highest level since Nymex trading began in 1983.
While 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.
OPEC has pledged to pump more oil if needed, though the market has tended to brush off such talk. That's because worldwide demand is averaging some 84 million barrels a day, excess production capacity is limited to about 1.5 million barrels a day and the type of oil available - sour crude - is not the preferred variety for making transportation fuels.
"The market was used to having 4 to 5 million barrels in spare capacity some 10 years ago and people would still like to have this cushion available, but this is not the case anymore," said Manouchehr Takin, an analyst with the Center for Global Energy Studies in London.
The latest supply report from the U.S. Department of Energy showed that crude oil inventories grew by 2.8 million barrels last week to 320.8 million barrels, or 10 percent above year ago levels. The supply of distillate fuel, which includes heating oil, also increased, rising 2.6 million barrels to 129.9 million barrels, or 6 percent above last year.
The agency data showed a 2.1 million barrel decrease in the nation's supply of gasoline, putting inventories at 203.1 million barrels, or 4 percent below last year.
U.S. refiners operated at 95 percent of capacity, a slight decline from the week before.
Some traders say a spate of U.S refinery troubles - the latest reported by BP PLC (BP) on Wednesday - is evidence the industry and its aging infrastructure are having difficulty maintaining output at high levels. A BP spokesman wouldn't comment on how much production would be lost, though the unit that went down because of a leak has the capacity to process 80,000 barrels of fuel per day.
Mary Rose Brown, a spokeswoman for San Antonio-based refiner Valero Energy Corp. (VLO), said she has been getting calls from the financial media about minor production snags that in years past would not have received any attention. "Everybody's asking, so we tell," she said.
But Fitch's Caviness noted that "a side benefit" of refiners' willingness to talk about even the smallest production glitches is that it makes energy traders jumpy, and tends to push prices - and hence refiners' profits - higher.
In other Nymex trading, gasoline futures gained nearly a cent to $1.8320 a gallon, while heating oil inched up to $1.7839 a gallon.
In London, September Brent on the International Petroleum Exchange was trading at $62.22 a barrel, up 24 cents.
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Associated Press Writers Edith Balazs in Budapest, Hungary, and Gillian Wong in Singapore contributed to this report.
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