Sun, Nov 21, 2004 - Page 10 News List

Oil heats up as temperatures drop

JITTERY MARKETS Cold fronts approaching North America and Europe highlighted concern about energy shortages, sending New York crude up to US$48.44

AFP , NEW YORK

International oil prices surged on Friday as fears that looming cold fronts could expose energy shortages hit jittery markets.

New York crude rose US$2.22 a barrel to US$48.44 after reports that a key Venezuelan refinery had been brought to a standstill by a power cut.

Venezuela is a major supplier to the US and despite recent falls in crude prices, cold fronts approaching North America and Europe have highlighted underlying nerves about getting through winter.

The price of light sweet crude closed at more than US$48 for the first time since Nov. 10 on the New York Mercantile Exchange.

In London, Brent North Sea crude for delivery in January rose US$2.17 to US$44.89 in late trading.

John Kilduff, an analyst for the Fimat trading company, said that problems at the La Isla refinery in Venezuela had been "the catalyst" for the new market turbulence. La Isla, which handles about 195,000 barrels of oil per day, is expected to be closed for three or four days.

The closure "highlights the vulnerable situation we're in," Kilduff said.

Refineries are returning to average supply levels following disruptions caused by hurricanes in the Gulf of Mexico in August and September. But they are struggling to provide enough heating fuel for winter months.

While US natural gas reserves are at a record level, heating fuel stocks are 16 percent below the levels of last year, experts say. With temperatures expected to start falling today, demand is going to increase, Kilduff predicted.

Jim Still, an analyst for Refco, said high prices for heating fuel in Europe, another key source for the US market, was also a concern. But while Kilduff expressed concerns that prices could hit new highs, Still said world supplies appeared adequate and that he felt markets had over-reacted.

Oil prices hit a record US$55.67 a barrel on Oct. 25 but have since steadily fallen.

Similar fears about supplies have been expressed in Europe, however. Bache Financial broker Christopher Bellew said: "Prices are rallying on the low heating oil stocks in the US and cold weather."

Barclays Capital analyst Kevin Norrish said recent developments on the heating oil market might be signalling a turning point back up again for crude oil prices.

"Another factor that the market needs to be wary of is the possibility that OPEC is becoming inclined to begin ratcheting back its output levels," he wrote in a note to clients. OPEC ministers are due to meet in Cairo on Dec. 10.

In its monthly report published on Thursday, the Organization of Petroleum Exporting Countries trimmed its forecast for global oil demand growth this and next year due to expectations for lower economic momentum.

OPEC estimated global demand growth of 2.5 million barrels per day this year, cutting its forecast by 120,000 barrels per day.

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