Oil Hits New 10-Month Peaks After Blast

January 20, 2004

LONDON (Reuters) - Oil prices hit fresh 10-month highs on Tuesday as a huge blast at a liquefied natural gas (LNG) plant in Algeria closed the country's largest refinery and main oil export terminal.

The shutdown fueled concern over global supplies as freezing temperatures test wafer-thin fuel stocks in the United States.

U.S. light crude futures for February delivery (CLc1) fetched $35.69 a barrel, up 62 cents, after earlier hitting a new 10-month peak at $35.90, the highest level since the U.S invasion of Iraq in March. London Brent crude futures (LCOc1) rose 45 cents to $31.02 a barrel.

"Energy markets continue to take support from a strong fundamental picture, with OPEC statements and a deadly blast at the Skikda LNG plant in Algeria adding fresh price-positive news," said Barclays Capital in a market comment.

Prices marched higher after the Algerian explosion, which ripped through the vast petrochemical plant in the port city of Skikda on Monday, killing at least 23 people and shutting down all activity at the oil and gas refinery complex.

State oil company Sonatrach said there was no major damage to the Skikda refinery's electricity plant, and that the blast would have minimal impact on liquefied natural gas (LNG) deliveries.

Energy and Mines Minister Chakib Khelil said operations had been shut as a preventive measure, and a shipping agent said all oil shipments from Skikda had been halted.

Officials said they believed a boiler at one of the gas units was the origin of the blast, which was felt for kilometers and destroyed three liquefied natural gas (LNG) trains.

Algeria was the world's second largest exporter of LNG in 2002, and is a big supplier of oil products to Europe.

U.S. crude prices have shot up more than $8 a barrel, or 30 percent, since late September when OPEC agreed to cut official output limits by 900,000 barrels per day.

Since then, demand has risen with the onset of the northern hemisphere winter and U.S. fuel inventories have fallen to the lowest levels since the mid-1970s.

Saudi Arabia has said it is too early to predict what action OPEC will take when it reviews production policy at its next meeting on February 10 in Algiers. On Tuesday Qatar said the cartel should not rush to set its output level.

OPEC is worried that a big overhang of oil will trigger a collapse in prices in the second quarter when demand normally tails off at the end of winter. It is already pumping about 1.5 million bpd above its official ceiling of 24.5 million bpd, which excludes Iraq output.

The International Energy Agency, the energy watchdog for 26 rich nations, last week forecast a huge rise in second-quarter oil stocks if OPEC did not cut supplies from December.

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