Crude oil soars to US$59 a barrel

Fears US refineries will be unable to cope with increasing demand in the second half of the year sent crude markets roaring yesterday, with prices hitting a new intraday high near USS$60 a barrel.

The kidnapping last week of six oil workers, including two Germans, in OPEC-member Nigeria also contributed to the momentum.

"We have been expecting prices to come down for a while but this is clearly not the case. The rally is definitely sustained by gasoline demand in the United States posting a 3 percent yearly growth, which is seen as extremely strong," said Deborah White, energy analyst with Barclays Capital in Paris.

NEW HIGHS

"People are trying to push prices through US$60," she added.

Light crude for July delivery gained US$0.35 to US$58.82 by midmorning in Europe in electronic trading on the New York Mercantile Exchange.

Heating rose a cent and a half to US$1.6670 a gallon (3.8 liters), while unleaded gasoline futures were up more than a cent to US$1.6590 a gallon.

Brent August delivery broke the US$57.65 per barrel peak it reached last April to set a new high at US$58.58 yesterday on London's International Petroleum Exchange. It later fell back a bit to US$58.20 a barrel, up US$0.44.

Oil in Norway, the world's third-largest exporter, could begin a strike as early as today in a salary dispute that could cut one third from the country's daily output of 3 million barrels.

On Friday, crude climbed as high as US$58.60 per barrel before settling at US$58.47, an increase of US$1.89 on the New York Mercantile Exchange. That topped the exchange's previous intraday high of US$58.28 set on April 4.

While Nymex oil futures are more than 50 percent higher than a year ago, they are still well below the inflation-adjusted high above US$90 a barrel set in 1980.

Analysts unlike the record prices last year, which were driven largely by concern over geopolitical events in oil-producing countries such as Nigeria, Saudi Arabia, Iraq and Venezuela, this year's trend has more to do with speculative buying, continued supply fears and limited excess production capacity.

RANGE OF FACTORS

"This year we've had a confluence of factors driving up this rally: first, more hedge funds are allocating money to the red-hot oil markets; second, demand is outstripping supply; and third, capacity is tight in refineries and OPEC production facilities," said Victor Shum, energy analyst at Texas-based Purvin & Getz.

"The oil market is prone to price spikes because of capacity tightness, and this attracts the speculators, who tend to buy on momentum," Shum said.

Analysts said demand for distillates in the summer -- gasoline for vacationing Americans and diesel for generators of small businesses in China when power shortages occur -- keep the market on edge.