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Saudi king's hospitalization upsets skittish oil markets

Trader Ronald Gillman, center, in the oil pit at the New York Mercantile Exchange, shouts out orders on Thursday. The price of light, sweet crude for July delivery climbed US$0.84 to US$51.85 per barrel in New York on Friday. PHOTO: AP

World oil prices rose on Friday as the hospitalization of Saudi King Fahd unsettled markets already skittish about demand at the start of the US summer driving season.

New York's main contract, light sweet crude for delivery in July, climbed US$0.84 to US$51.85 per barrel in closing deals.

In London, the price of Brent North Sea crude oil for delivery in July gained US$0.54 to US$50.70 per barrel.

King Fahd's hospitalization left markets nervous about events in the world's largest oil producer, which has pledged to boost production to meet surging global demand.

"Prices rose rose on short covering ahead of the week-end but then came the news that King Fahd had been brought to a hospital," which accelerated the buying, said Fimat USA analyst John Kilduff.

If Fahd were to die over the weekend, that would likely boost prices because of the "uncertainty in the major oil producer in the Middle East," he added.

Seth Kleinman of PFC Energy said the news from Saudi Arabia had an impact but "we had a strong week" for oil prices as a disappointing report on US stockpiles prompted buyers to bid up prices.

"The fundamentals have changed a lot," he said.

Prices had closed more than a dollar higher on Wednesday when a US government survey showed a surprise drop in inventory levels of crude oil, which refineries turn into gasoline.

The US summer holiday driving season, which sees many Americans taking to the open roads in their vehicles, officially begins this weekend ahead of the Memorial Day holiday.

"Some of the gains seen this week have also been in preparation for the long weekend," Investec analyst Bruce Evers said.

The US Energy Department said Wednesday that US crude inventories fell 1.6 million barrels in the latest week, against market expectations for an increase.

But at 332.4 million barrels, stocks remained well above the upper end of the average range for this time of year.

The report also showed gasoline stockpiles rising 600,000 barrels to 215.4 million, in line with most forecasts.

"With the product inventories still bearish the market may struggle to break any higher unless we see some bullish fundamental news," analysts at the Sucden brokerage firm said.

"Crude stocks are still over 10 percent above year-ago levels and OPEC looks likely to continue almost flat-out crude production."

The Organization of Petroleum Exporting Countries is producing in excess of 30 million barrels per day, a figure that is close to 25-year high points.

Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo, said US gasoline stockpile levels were stable, allowing prices to ease below US$50 per barrel next week.

"I think there's a possibility of prices going down rather than going up," he said. "I don't think the gasoline market is tight, it's stable," he said, adding that US refineries were capable of meeting demand during the summer driving season.
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