Supply woes drive oil prices to new settlement high


Sun, Mar 20, 2005 - Page 10

Oil prices rose to a new settlement high above US$56 a barrel on Friday, reflecting traders' fears about tight supply amid strong global demand.

OPEC tried to calm the markets this week but failed due to concerns about the oil cartel's limited ability to quickly add more barrels to the market.

Light, sweet crude for April delivery settled US$0.32 higher at US$56.72 a barrel on the New York Mercantile Exchange, topping the previous closing high of US$56.46 set on Wednesday. Crude futures set an intraday high of US$57.60 per barrel on Thursday.

"It still looks like we haven't found a top yet," said Tom Bentz, a broker at BNP Paribas Commodity Futures in New York.

Oil is 50 percent more expensive than a year ago but still well below the inflation-adjusted peak above US$90 a barrel set in 1980.

In London, Brent crude rose US$0.53 to US$55.59 a barrel on the International Petroleum Exchange.

The feverish rally in recent weeks -- prices up US$15 since the start of the year -- has been underpinned by a weak dollar and rising global demand at a time when there is very little excess supply immediately available. There are no fuel shortages, though traders are clearly pricing in that possibility, whether due to a terrorist attack, a refinery snag or some other unexpected supply bottleneck.

Although the Organization of Petroleum Exporting Countries (OPEC) agreed on Wednesday to boost its output quota by 500,000 barrels a day, or 1.9 percent, the market brushed off the decision. Since members are already producing above their quotas, no extra supply will actually be added, analysts said.

But OPEC left open the possibility of raising its output quota by an additional 500,000 barrels and signaled on Thursday that such a move could come as early as next week.

Because crude is denominated worldwide in US dollars, and because the currency has lost nearly 10 percent of its value against the euro in the past year, OPEC nations have signaled support for higher oil prices in order to maintain their buying power in Europe.

Lorraine Tan, Singapore director of research at Standard & Poor's Investment Services, said the market is also fueled by supply fundamentals, such as the insufficient investments in refineries.

"Many refineries are subject to shutdowns now because they are running on full capacity. So the market gets jittery," she said.