Terror fears drive up oil prices

Brittany Davis fills up her car at a Chevron station in west Las Vegas on Friday. Oil prices rose nearly US$2 a barrel on Friday, bouncing back from a dip earlier in the week as markets reacted to a fire at a massive refining complex in Venezuela and developments in Ecuador, where protesters had forced a halt to production. PHOTO: AP

Oil prices jumped more than US$2 and closed above US$65 a barrel on Friday, pushed by Middle East terror fears and a production outage in Andean producer Ecuador.

The gains capped a volatile week for the oil market, as supply worries sparked by a missile attack on a US Navy ship off the coast of Jordan and the Ecuador production outage overshadowed earlier concerns that the record high prices were slowing demand.

"In the earlier part of the week, people were worried about demand and then these things happened and now people are worried about the supply side," said Jim Rollyson, vice president for energy research with Raymond James & Associates.

September crude futures on the New York Mercantile Exchange rose US$2.08 to close at US$65.35 a barrel, recouping the bulk of losses incurred earlier this week.

On London's International Petroleum Exchange, October Brent crude futures jumped US$1.96 to close at US$64.36.

Petroleum products futures were pushed higher partly by the renewed strength in crude and partly by lingering worries about refinery glitches, including outages at two key Venezuelan refineries.

September gasoline futures edged US$0.0410 higher to close at US$1.9039 a gallon, while September heating oil futures rose US$0.0323 to close at US$1.8228 a gallon.

Terrorism worries were kindled after militants affiliated with an al-Qaeda-linked group in Jordan fired at least three missiles from Jordan, with one narrowly missing a US ship docked in a Jordanian port.

The attacks, which the al-Qaeda-linked Abdullah Azzam Brigades militant group claimed responsibility for, come at a time of heightened tension in the oil-rich Middle East, marked by continued instability in Iraq, a brewing crisis over Iran's suspected nuclear weapons program and a number of terrorist attacks in Egypt in the past year.

In Ecuador, several days of violent protests have halted production, forcing state-owned Petroecuador and EnCana Corp to declare force majeure on exports, the bulk of it going to the US

Ecuador produces about 535,000 barrels a day, exporting 390,000 barrels a day, including 290,000 barrels a day to the US, according to the federal Energy Information Administration. It's not clear exactly how much production has been shut down and how much exports are affected. Several oil companies have reported halting output in the past day, and Venezuela said it has yet to receive a request from Ecuador to provide it with oil to keep its export commitments to customers.

An executive with Petroecuador said on Friday the force majeure, affecting more than 100,000 barrels a day of exports to the US, may last up to 60 days. Petroecuador has stopped all of its 200,000 barrels a day in production.

An EnCana spokeswoman in Canada said the company has declared force majeure on all its production of 78,000 barrels a day.

"EnCana is continuing to work with the relevant authorities towards a peaceful solution," Almas Kassam said.

But analysts at Eurasia Group, a New York based consultancy, said an end to Ecuador's costly oil stoppage remained in doubt despite the Ecuadorean military's takeover of key strategic production points in the country's northern oil producing provinces.

"The government hopes to negotiate a solution to the crisis once tensions ease but oil production will only pick up once protesters agree to talk with the government," Eurasia analyst Patrick Esteruelas said in a note, Dow Jones Newswires reported.

The US imported about 288,000 barrels a day of crude oil from Ecuador in June, making it the No. 9 source of crude imports, according to the EIA.

"The shut-in could affect the US West Coast more than the size of Ecuadorean imports might suggest," the Eurasia note said.

Worries about petroleum product supplies lingered amid trouble at Venezuela's giant Amuay refinery where a fire this week forced the facility to reduce run rates.

Jesus Luongo, manager for the Amuay and Cardon refineries, said that a distillation unit at the Amuay refinery was due back up Monday or Tuesday.

A key gasoline-producing unit at PdVsa's Punta Cardon refinery is expected to return to service by next Friday, he said.

The 77,000 barrel a day fluid catalytic cracker at Punta Cardon was shut for repairs about a month ago, he added.

Venezuela exports relatively small amounts of petroleum products such as gasoline to the US, but is the No. 4 source of crude oil for the US, where state-owned Petroleos de Venezuela SA runs a number of refineries through its Citgo unit.