Oil: Price breaks US$54 as tropical storm nears

NEW YORK - Crude oil prices surged over US$54 a barrel on Thursday as dealers worried that a tropical storm bearing down on US oil and gas platforms in the Gulf of Mexico could cut into production.

A continued unseasonal rally in heating oil prices also supported the gains as funds bet surging world demand for diesel and jet fuel would leave stockpiles thin ahead of the Northern Hemisphere winter.

US oil futures CLc1 were trading up US$1.66 to US$54.20 a barrel near the close of trade, while London Brent crude LCOc1 rose US$1.47 to US$53.58 a barrel.

Chevron Corp. said on Thursday it was evacuating non-essential oil workers from its offshore installations in the US Gulf as a precaution against Tropical Storm Arlene, the first named storm of the 2005 Atlantic hurricane season.

Dealers said worries that Arlene would strengthen on its northern track toward the Gulf Coast, home to the lion's share of US refineries, were supporting crude's gains.

"The market is sensitive to this first storm coming in so early in the season and mindful of post-hurricane damage brought by Ivan last year," said Tom Knight, trader at Truman Arnold, a Texas-based marketer of petroleum products.

Ivan was one of the most devastating hurricanes to the US oil industry, shutting in about 45 million barrels of oil production over five months, damaging platforms and causing undersea mudslides that destroyed pipelines.

Thursday's rally was also supported by continued concern over growing world demand for distillate fuels, which include diesel and jet fuel.

US heating oil futures, the benchmark for distillate fuels, jumped 6.72 cents to US$1.62 a gallon, continuing an unseasonal 20 per cent winning streak since mid-May.

US diesel demand over the past four weeks has averaged 6.6 per cent higher than the same period a year ago, outpacing petrol demand growth by more than double. European and Asian demand has also been growing.

Big money funds are betting that higher consumption of distillates will leave consumer nations in short supply of heating oil when the Northern Hemisphere winter approaches.

Speculators blamed

Opec's president on Thursday blamed high oil prices on speculators and said there was no shortage of crude.

"There was never a shortage in the market," said Opec President Sheikh Ahmad al-Fahd al-Sabah of Kuwait. He blamed "misinformation and misguidance in the market." Opec has been producing at 25-year highs in an effort to rein in runaway oil prices, which have surged nearly 25 per cent so far this year.

The higher production has helped push crude stockpiles in consumer nations sharply higher, though dealers are worried that the world's oil suppliers will not be able to keep pace with rising demand.

US crude oil stockpiles have built near their highest level since 1999, though oil experts have said the higher inventories are less significant than they were six years ago because the rate of consumption has grown.

Opec ministers will meet next week in Vienna to discuss output policy for the second half of the year.

The group is expected to consider raising its production limits in a bid to help ease prices.

Federal Reserve Chairman Alan Greenspan said on Thursday the high price of longer-term oil futures reflects the market's concern over possible future shortages.

He added that consumers are likely to seek out more energy-efficient cars and better-insulated homes in response to the energy costs.

- REUTERS