Crude Oil Prices Surge to New High

Associated Press

Crude oil prices surged to a new high Monday on supply concerns ahead of the winter, a possible petroleum-industry strike in Norway and data showing that China's big demand for oil is likely to increase.

Crude futures for December delivery hit a high of $55.67 Monday morning in European hours electronic trading on the New York Mercantile Exchange, up 50 cents from its record close Friday when the U.S. Energy Department reported a fifth straight drop in heating oil stocks. It was also an intraday record.

By late morning in Europe, prices had eased slightly to $55.36.

In early trading on London's International Petroleum Exchange, the price of December Brent crude futures also hit an intraday record, reaching $51.70. That was 48 cents above Friday's record close.

November heating oil hit a record high of $1.6030 per gallon Friday. It was $1.6005 late Monday morning in Europe.

New on the watch-list of supply worries was an announcement by the Norwegian Shipowners Association of a lockout affecting workers on nearly 100 offshore service vessels and shuttle tankers on the Norwegian continental shelf. The strike is set to take effect Nov. 8.

Kevin Norrish, oil analyst at Barclays Capital in London, said that if the strike were to cut off all of Norway's exports, the result would be "pretty serious."

"If it does go ahead, we are into $60 territory without a shadow of a doubt," he said. "The market's going to be very, very nervous about it indeed."

Norway produces at least 3 million barrels of crude daily and is a crucial supplier of natural gas and distillate fuel.

Fears of a cold Northern Hemisphere winter have further stoked the price of crude and heating oil, with dwindling stocks also being reported in Western Europe and Japan.

Demand for jet fuel - kerosene and additives - also typically rises during the Christmas season because of extra flights, adding even more pressure.

Analysts and traders said they also were on the lookout for increasing demand from China, which released third-quarter economic growth figures Friday showing gross domestic product climbing 9.1 percent on year and 9.5 percent for the first 3 quarters of 2004.

"China, that's the bullish factor, but immediately there is concern over the lockout in Norway adding to the Chinese (economic) reports. There doesn't seem to be any end to price rises," said Esa Ramasamy, oil editorial manager for energy reporting agency Platts.

China is the world's second largest consumer of crude after the United States, and consumes more than 6 million barrels per day, the Paris-based International Energy Agency said in its latest report. There are no signs that demand from Beijing will decrease in 2005, the agency said.

While crude futures prices are more than 80 percent higher than a year ago, they still need to reach $80 per barrel in order to surpass the all-time peak - in inflation-adjusted terms - set in February 1981.

Crude has risen more than $10 in the past month alone, primarily on concerns over production in the Gulf of Mexico where over 23 million barrels remain shut in since Hurricane Ivan hit mid-September.

Winter woes are taking place against the backdrop of disruptions in production and turmoil in key producers such as Iraq, Venezuela, Nigeria and Russia.

Iraqi officials said there have been 250 guerrilla attacks on pipelines and other oil infrastructure, squandering between $7 billion and $12 billion in potential export revenue.

"What Iraq needed to do was rehabilitate the industry, but the focus has been on repairing the damage from sabotage," said Walid Khadduri, an Iraqi who edits Middle East Economic Survey, an oil journal based in Nicosia, Cyprus.

Iraq's Oil Minister Thamer Al-Ghadhban estimated emergency repairs and lost revenue had cost the country $7 billion since exports resumed after the invasion.

Posted by Wintermute at October 25, 2004 08:19 AM