Sun, Jan 16, 2005 - Page 10 News List

Supply snags and low temperatures drive oil prices up

EXCESSIVE DEMAND Light sweet crude for February delivery settled at US$48.38 a barrel on the New York Mercantile Exchange, a level not seen since November

AP , WASHINGTON

Iraqi Interim Prime Minister Ayad Allawi, left, talks to an engineer during a visit to the repaired part of the oil refinery in Baghdad's Dora district on Thursday. The refinery was damaged during a rocket attack two weeks ago that interrupted heating-fuels production in Iraq, where an unseasonably cold winter has brought below-freezing temperatures. Fears of more attacks against oil infrastructure in Iraq contributed to rising crude oil futures prices in New York, analysts said.

PHOTO: EPA

Crude oil futures prices rose for the fourth day in a row on Friday, reaching a level not seen since late November as traders pinned a 6 percent rise in the past week on supply snags and expectations of colder weather.

Light sweet crude for February delivery was up US$0.34 to settle at US$48.38 a barrel on the New York Mercantile Exchange. Last Friday, oil futures settled at US$45.43 per barrel.

In London, Brent crude for February delivery slipped US$0.06 to US$45.15 per barrel on the International Petroleum Exchange.

Other factors contributing to higher prices were the strong dollar, the possibility of another OPEC production cut and fears of more attacks against oil infrastructure in Iraq, analysts said.

"Fundamentally, I do think there's support for these prices," said Jamal Qureshi, an oil-markets analyst at Washington-based PFC Energy.

The consultancy estimates that average daily demand of 84.5 million barrels a day will exceed global production by about 1 million barrels a day, requiring fuel to be pulled from storage tanks in order to meet growing consumption, particularly in Asia and the US.

Qureshi said he expects the supply-demand balance to be reversed by the second quarter, when demand typically slows down, and at that point he wouldn't be surprised to see considerably lower prices.

"We're going to see a lot of that kind of volatility," he said.

Still, some analysts said they believe the latest price run-up exaggerates the actual risks in the market and that supplies are not as tight as traders suggest.

Robert W. Baird & Co oil analyst George Gaspar conceded that the global supply cushion is "thin," though he said slower demand growth this year and increased production from non-OPEC countries will ease some of the tensions experienced last year.

Global oil demand is expected to rise about 1.8 percent to 84 million barrels a day this year, compared with a rise of 3.3 percent in last year, due to a slowdown in economic expansion.

"I think there's an awful lot of hype in the oil market," Gaspar said.

Maybe so. But Esa Ramasamy, oil editorial manager at Platts, said: "I'm doubtful that it will even go to the US$40 mark, there's just too much market support for these prices."

In Norway, bad weather prevented Royal Dutch/Shell Group of Cos from restarting the 140,000 barrel-a-day Draugen field in the Norwegian field. The field was shut down on Friday after bad weather prevented repairs to damaged crude oil loading equipment.

Temperatures will be below normal next week in the US Northeast, the National Weather Service predicted. Oil traders also are watching for a sustained period of freezing weather in the region that could strain heating oil supplies, which are 7 percent lower than last year at this time.

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