Crude oil futures rallied late Friday to a new record high of US$54.93, a day after a decline in the US inventory of heating oil roiled a market already on edge over tight supplies, high demand and unrest among key producers.
Oil for November delivery rose US$0.17 to settle at US$54.93 a barrel on Friday on the New York Mercantile Exchange, after slipping to US$54.14 in early trading. The November contract had settled at US$54.76 on Thursday for the previous high.
In London, Brent crude for December delivery on the International Petroleum Exchange settled down US$0.16 to settle at US$49.93.
The oil markets are already concerned about supply shortages, largely because of the slow recovery of oil production in the Gulf of Mexico following Hurricane Ivan -- crude futures have climbed about US$10 a barrel the last month alone.
"It's momentum," said Fadel Gheit, senior energy analyst at Oppenheimer & Co in New York, noting that traders were also reassured by Fed Chairman Alan Greenspan's comments that surging oil prices have not adversely affected the US economy.
"I don't believe we're going to see any letup in oil prices before the [US presidential] election," Gheit said.
Nearly 20 million barrels of oil have been shut in since Ivan hit the Gulf of Mexico in mid-September, and daily oil production in the region remains 27 percent, or 462,000 barrels, below normal, the US federal Minerals Management Service said on its Web site on Friday.
While oil prices are more than 70 percent higher than a year ago, they are still around US$25 below the peak inflation-adjusted price reached in 1981.
Greenspan said on Friday the rise in energy prices is likely to have far less of an impact on the economy than the oil shocks of the 1970s. He predicted that the global economy will adjust by boosting energy exploration and production and by increasing fuel efficiency. But he conceded that the transition period could feature unexpected bumps.
One major concern for the market, analysts say, is that the world's excess production capacity -- the amount of immediate surplus supply -- is about 1 percent of daily demand, now estimated to be above 82 million barrels.
However, analysts said demand does not fully account for the skyrocketing prices.
"Demand is strong, but not as strong as the numbers would suggest," Gheit said. "Demand is embellished ... and global inventories are rising, and will continue to rise."
The thin supply cushion in the event of an extended production outage has led to the markets' focus on events such as the just-concluded oil workers' strike and threats of rebel attacks in Nigeria, Africa's largest producer; sporadic attacks by militants on Iraqi pipelines; unrest in Saudi Arabia, the world's largest producer; the on-again, off-again tax battle between the Russian government and oil giant Yukos; and political tensions in key OPEC producer Venezuela.
Nevertheless, Gheit pointed out that despite these events, oil production in Iraq, Saudi Arabia, Nigeria, Venezuela, Norway and Russia has not been negatively influenced.
"The only physical destruction has been Hurricane Ivan," Gheit said.
Declines in US distillate stocks just before the Northern Hemisphere winter are the latest in a line of supply factors to concern the oil markets.
The US Energy Department said in its weekly petroleum supply report Thursday that commercially available supplies of heating oil declined by 1.2 million barrels for the week ending Oct. 8, falling to 50.0 million barrels, or 10 percent below year-ago levels.
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