Wednesday, July 06, 2005

Oil Prices Close to $60 a Barrel

SINGAPORE - Crude oil prices rose Wednesday amid concerns about U.S. supply disruptions as a tropical storm pounded the Gulf Coast, forcing oil companies to evacuate rigs in the Gulf of Mexico.

Mid-afternoon in Singapore, light, sweet crude for August delivery gained 30 cents to $59.89 a barrel on the New York Mercantile Exchange.

The contract reached $60.10 on Tuesday and closed up 84 cents at $59.59. Heating oil rose marginally to $1.7397 a gallon while gasoline was up by nearly two cents at $1.7081.

At London's International Petroleum Exchange, August Brent futures opened 11 cents higher at $58.40 a barrel before pushing to $58.58.

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Bearing heavy rains and high winds, Tropical Storm Cindy forced at least 23 petroleum production platforms and six drilling rigs to be evacuated, interrupting more than 3 percent of the Gulf of Mexico's normal oil and natural gas production.

Analysts said the storm was a reminder of the vulnerability of U.S. refineries, already operating at maximized levels, to any supply disruptions caused by glitches.

Traders remembered last year's Hurricane Ivan, which forced oil platforms across the Gulf of Mexico to shut down, causing production bottlenecks and sending prices up as the northern Hemisphere was gearing up for winter heating oil production.

"Memories are still strong of the severe and lasting damage done along the US Gulf Coast by hurricane Ivan last autumn, and the fear is that another heavy season of tropical storms will batter this key producing region again this year," said Energyintel analyst Tom Wallin in a research note.

Tropical Storm Cindy, the third named storm of the Atlantic hurricane season, helped send Tuesday's oil prices briefly over the $60 a barrel mark. Another storm, Dennis, is following close behind.

Though neither are expected to develop into hurricanes, the prospect of consecutive storms hitting the region and possibly disrupting production operations is keeping the market on edge.

"The market's strong price response to this weather threat again underscores how tightly balanced and vulnerable the entire energy supply system is," Wallin said.

Energy futures have been supported for almost two years by strong demand and worries about limited excess capacity in oil production and refining around the globe. Concerns about terrorism, the war in
Iraq and labor strife in oil-producing nations such as Nigeria and Norway have also fed fear into the market.

Crude futures are about 50 percent above year ago levels, though still below the inflation-adjusted high above $90 a barrel reached in 1980.

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