October 26, 2004
By Megan Davies
Yahoo Business
NEW YORK (Reuters) - Oil prices broke above $55 a barrel on Tuesday as concern lingered over thin world heating oil supplies ahead of the northern winter.
U.S. light crude for December settled at $55.17 a barrel, up 63 cents on the day, while Brent crude in London rose 78 cents to close at $51.56 a barrel.
U.S. crude surged to a record $55.67 on Monday after a Norwegian shipowners' group briefly threatened to shut down the country's output to resolve a deadlocked strike, but recoiled after the government stepped in to end the dispute.
Norway is the world's third largest oil exporter, and a halt in shipments would have stretched world supply to the limit ahead of the Northern Hemisphere winter when heating demand picks up pace.
"The system has insufficient spare capacity to be shock proof," said Jeroen van der Veer, chairman of oil giant Royal Dutch/Shell at the Oil and Money conference in London.
The Organization of the Petroleum Exporting Countries has been pumping at nearly full throttle since the summer to meet the biggest annual leap in demand for a generation.
Last month's Hurricane Ivan continues to curtail Gulf of Mexico production, where more than 400,000 bpd remains shut in six weeks after the storm.
The outage has impeded the seasonal stockbuild of winter fuels, with U.S. heating oil inventories lingering 12 percent below last year's level and inventories in big consumers Germany and Japan also lagging.
Stockpiles of middle distillates, which include heating oil and jet fuel, are expected to have fallen in the U.S. for a sixth consecutive week in government data due to be released on Wednesday.
Supplies should be building to prepare for the spike in winter demand, which will depend largely on the timing and severity of cold weather in the heavy consuming U.S. Northeast.
BITTER COLD
Extremely cold weather could be classed as a supply disruption that would trigger a release of emergency heating oil stocks, the head of the International Energy Agency (IEA), which advises 26 industrialized nations on energy, said on Tuesday.
"If this winter is very cold and there is a threat of a heating oil supply disruption, we could work to coordinate an answer, maybe as a heating oil release in one place or worldwide," the IEA's Claude Mandil told reporters.
Oil prices have stayed well-above $50 for the past three weeks, prompting consuming nations to take a closer look at the potential damage to their economies.
U.S. officials have said solid growth might be slightly diminished but not derailed by expensive oil, while fast-growing Asian importers China and India continue to show evidence of strong demand.
The head of oil major BP, which on Tuesday reported a 43 pct rise in third-quarter profits, said oil prices would stay strong for the foreseeable future.
"Oil prices are considered to have an approximate support level of $30 per barrel for at least the medium term, with chances of spiking above this level, BP Chief Executive John Browne said.
Qatar's oil minister expressed concern on Tuesday at record high oil prices.
"There is no shortage of oil. There are no queues at the gas stations and no calls from our customers for extra cargoes," Qatari Oil Minister Abdullah al-Attiyah told Reuters. "There is no panic over supply, but there is panic over thehigh price. And I'm concerned about the high price, too."
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