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Oil scales new peaks, eyes $60

Associated Press | June 20, 2005
By Maryelle Demongeot

Oil prices soared to a record high above $59 a barrel on Monday, extending last week's surge as a threat against Western consulates in OPEC-member Nigeria jolted traders already worried about tight supplies.

Oil climbed more than 9 percent, or nearly $5, last week, drawing buying interest from trend-following hedge funds as prices surpassed the previous early April high.

U.S. light crude for July delivery hit a front-month record $59.18 per barrel, before paring gains to stand up 59 cents at $59.06 at 0439 GMT.

The August contract rose 62 cents to $59.80 a barrel and contracts for the last four months of the year, when oil demand picks up in the northern hemisphere, were all trading above $60.

London Brent crude for August jumped 71 cents to $58.47 a barrel, also a front-month peak.

Market anxiety over oil exports from producer nations resurfaced on Friday after the United States, Britain and Germany closed their consulates in Nigeria's largest city Lagos due to a threat from foreign Islamic militants.

"The market continues to suspect there might be supply disruptions resulting from these issues in Nigeria," said Daniel Hynes, resource analyst at ANZ Institutional Banking.

"When you get that occurring during an extremely tight period of strong demand, then prices naturally are going to react very strongly."

Nigeria, the world's eighth-largest oil exporter and supplier of about 10 percent of U.S. crude imports, has been named a candidate for "liberation" by Osama bin Laden, who has also threatened Middle East oil installations.

POLITICAL RISK

An industry survey in Boston last week showed that more than half the respondents considered "political upheaval in a strategic country" as the most likely cause for disruption to oil supply.

In Iran, the world's fourth-biggest producer, hard-liner Mahmoud Ahmadinejad made a surprisingly strong showing in presidential elections, pitting him against pragmatic cleric and former president Akbar Hashemi Rafsanjani in Friday's run-off.

Reformists urged supporters to back Rafsanjani, while hard-liners called for conservatives to support the Tehran mayor. Both received about a fifth of the first-round vote.

Below-average U.S. inventories of distillates -- which includes diesel, heating oil and jet fuel -- coupled with robust consumption has heightened worries that refiners will not be able to keep up with demand in the second half of the year.

Prices are up 36 percent since January as speculative funds bet strong global economic growth will strain supplies, especially if there are any unexpected disruptions, such as last week's shutdown by Royal Dutch/Shell of a gasoline unit at it's Deer Park, Texas, refinery. The unit may be shut for up to two weeks.

DEMAND WORRIES

U.S. distillate demand over the past four weeks was 6.5 percent higher than a year earlier, more than twice the growth in gasoline, while Chinese demand should pick up soon as business owners fire up diesel-fueled generators to overcome a power crunch on regional grids.

The Organization of the Petroleum Exporting Countries (OPEC) last week raised its production ceiling by 500,000 bpd and pledged to put another 500,000 bpd on the market soon if prices remained high, but officials admitted it was unlikely to help.

"The fundamental problems with the conditions of the market are related to refinery capacity," Iran's OPEC governor Hossein Kazempour Ardebili said on Saturday.

"Because the demand for jet fuel and gasoline has been spurred by the travel season, increasing the OPEC ceiling will not solve any problems."

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