Sun, Jul 18, 2004 - Page 10 News List

Crude soars on supply, terror fears

PETROLEUM Reports that OPEC is already pumping near capacity and strong demand caused oil prices to rise, as a Kuwaiti official predicted sharp drops soon


New York's main crude oil contract Friday shot to the highest close since June 1 amid fear of terrorist attacks and on a report that OPEC is already pumping near full capacity.

New York light sweet crude for delivery next month surged US$0.48 to end at US$41.25 a barrel after spiking at US$41.80. It was the highest close since the June 1 record finish of US$42.33.

Brent North Sea crude for September delivery advanced US$0.52 to US$38.

"The two stories really have been that demand, regardless of the other soft economic data that we may have seen, is continuing to be very robust and concerns of terror have been a little bit higher," said Phil Flynn, a senior market analyst at Alaron Trading.

Oil consultancy Petrologistics stoked concerns by reporting that OPEC was now pumping at close to full capacity, Flynn said.

"You can look it both ways. Obviously it is a little bit bearish if demand falls off but on the other hand if demand continues to rise how much more oil can OPEC pump?" he asked.

"It also hits home how vulnerable the system is overall. If anything goes wrong [it] can really disrupt the entire system. That is keeping underlying support," he said.

Refco market analyst Marshall Steeves said the rally was being driven by speculators.

"There's really a divorce from the fundamentals. OPEC members are individually producing as much as they can," Steeves said.

"There are concerns about further terrorists attacks," he said.

Traders worried about US oil inventories, instability in Iraq and the wider Middle East and growing demand for crude.

Prices rose sharply on Wednesday after government data showed a tightening of supplies in the US, notably a fall of 2.1 million barrels in crude oil stocks in the week to July 9.

A fire at a pipeline connecting the oil fields of the northern Iraqi city of Kirkuk and the Turkish port of Ceyhan on Thursday added to market worries.

Officials from the Northern Oil Company (NOC) said Friday that the blaze, which halted crucial oil exports, had been extinguished.

Insurgents fired mortars at a pipeline connecting the oil fields of the northern Iraqi city of Kirkuk and the Turkish port of Ceyhan but missed their target, said Ahmad Hassan Afif, a security official at NOC.

He said that the pipeline was still shut and repair work was to begin yesterday morning.

OPEC decided Thursday to cancel a meeting next week but go ahead with plans to increase output by 500,000 barrels per day from Aug. 1.

The move was "viewed as irrelevant since the 500,000 [barrel per day] quota hike has already been implemented, with additional output already scheduled for August," Barclays Capital analysts told clients in London.

Meanwhile, Kuwait's Minister Of Energy, Sheikh Ahmed Fahed al-Sabah, said he expects oil prices to drop from around US$40 per barrel to between US$28 and US$32 per barrel, a The Korea Times reported yesterday.

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