Oil climbs toward $66 on supply jitters
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Oil climbs toward $66 on supply jitters

Reuters | August 22, 2005

LONDON - Oil strode toward $66 a barrel on Monday after fears of potential supply disruptions in the volatile Middle East drove prices higher late last week.

U.S. crude <CLc1> was up 38 cents at $65.73 by 1340 GMT -- a short distance from an all-time high of $67.10 hit on August 12. London Brent crude <LCOc1> had risen 40 cents to $64.76.

Prices jumped over $2 a barrel on Friday, partly recovering from a mid-week slump, after two missiles fired at U.S. ships in Jordan's Aqaba port fueled concern over the security of supplies from neighboring major Middle East exporters.

A series of production outages -- and the threat of more to come -- has overshadowed relatively comfortable crude stock levels in the United States, the world's biggest consumer.

Global production and refining constraints have kept U.S. oil prices sizzling at an average $53.79 a barrel this year versus an average $41.47 in 2004.

Vulnerability in the crude oil supply chain is leading analysts to speak again of a "fear factor" inflating prices.

"Behind this is a realization that it would only require one severe supply disruption (e.g. from Iraq, Iran, Venezuela, Nigeria) to wipe out the crude stock cushion," said a Standard Bank report.

"And less unusual events (such as a severe U.S. Gulf hurricane season or a cold winter) still have potential to tighten the market, highlighting dangers from one of the bigger risks."

Worries that higher oil prices are eating into economic growth, and the looming end of the peak-demand summer gasoline driving season in the United States, could weigh on prices.

Stocks of heating oil and distillates, demand for which peaks in the winter, stand above last year, but worry over tightly stretched refining capacity is likely to offer support.

"There's a few refinery problems in the U.S. and demand is still good. I think the overall picture is still bullish. You see more and more funds going into the oil market, which is going to keep prices steady," said a Singapore-based oil trader.

Lofty oil prices could correct downward, but any losses are likely to be short-lived, analysts said.

With some production in the UK North Sea and India also offline, dealers fear OPEC -- already pumping nearly flat out at its highest rate in a quarter century -- would strain to make up for any more unexpected outages.


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