Oil surges over US$48 after supply drop
(Agencies)
Updated: 2004-09-23 09:21

Oil prices climbed to within a dollar of a new record on Wednesday after the US government reported a big decline in oil stockpiles because of disruptions from Hurricane Ivan.

US oil futures settled up US$1.59 at US$48.35 a barrel after hitting US$48.65 midday, just 75 cents shy of the US$49.40 record struck on Aug. 20. The gains came after the US Energy Information Administration said crude supplies fell 9.1 million barrels last week due to the effects of the hurricane.

US oil supplies in the wake of Ivan dropped to the lowest since February, and well-below the average range in the run-up to winter, when heating oil demand hits its peak, according to the EIA's weekly report.

"The market is clearly responding to the inventory report," said Mike Fitzpatrick, vice president for energy risk management at FIMAT USA.

Hurricane Ivan last week thrashed through the Gulf of Mexico, home to a quarter of US oil and gas production, forcing oil companies to evacuate. As of Wednesday, Ivan was blamed for a cut to US oil production of 9.1 million barrels, according to the US Minerals Management Service.

Questions remained over how long it would take oil producers to restart their offshore operations, with some companies reporting structural damage to platforms and overall output still lagging at 66 percent of capacity.

BP (BP.L), which accounts for about 20 percent of Gulf of Mexico oil production, said on Tuesday it did not expect its output to recover fully for two or three weeks.

Heating oil futures, meanwhile, zoomed to a fresh record of US$1.3520 a gallon on the NYMEX before settling at US$1.3444, as the drawdown in crude stocks in the world's largest energy consumer triggered fears of a winter supply crunch, dealers said.

"Stocks last week, this week and probably continuing into next week will have been disorganized by the hurricanes and until we get a clear sign that inventories are building, the markets are going to be volatile," analyst Adam Sieminski of Deutsche Bank said.

Concerns about inadequate stocks were made worse by lingering worries about security of supply.

Russian oil major YUKOS, struggling to pay a US$3.4 billion tax bill, was forced to cut production Wednesday.

Its main subsidiary Yuganskneftegaz cut output by 35,000 barrels per day (bpd), or 2 percent of YUKOS's production, after a power firm switched off supplies for nonpayment, Interfax news agency reported.

However, pipeline monopoly Transneft said it believed YUKOS's exports to Europe were safe after it agreed to accept payment of export shipping fees in crude oil and not cash.

Adding to the uncertainty was continued violence in Iraq and attacks on its oil infrastructure, as well as rising tensions between Iran and the United Nations over Tehran's nuclear ambitions.

London Brent crude settled up US$1.54 to US$44.93 a barrel after matching a record high of US$45.15 a barrel.

US distillate stocks fell 1.5 million barrels to 126.8 million barrels, according to the EIA report, while gasoline supplies fell 2.8 million barrels to 199.7 million.