Oil: Price rises to five-week high

Oil prices climbed 5 per cent on Wednesday to their highest since late April, led by an unseasonal rally in heating oil as speculators bet on a looming crunch in distillate supplies.

"Once refineries focus on petrol production, distillate supplies may become very tight," said Phil Flynn, an analyst at Alaron Trading in Chicago.

US light sweet crude rose US$2.61, or 5 per cent, to US$54.58 a barrel -- the highest in five weeks -- while heating oil futures jumped 8.75 cents to US$1.537 a gallon. London Brent rose US$2.47 cents to US$53.20.

Refineries typically produce more petrol and less of other fuels in the spring to meet summer driving demand, and analysts say the industry may have trouble keeping storage tanks filled with diesel, jet fuel, and other distillates.

"Globally, distillates are really tight right now," said Doug MacIntyre, an analyst at the US Energy Information Administration.

US distillate demand growth is running at more than 3 per cent this year, outpacing petrol or crude, due in part to higher diesel use from truckers moving Chinese products to market from the West Coast, and rising jet fuel consumption from airlines.

Dealers said continued strong demand growth in Europe, where diesel-powered cars are dominating market share, and from China's power sector was also keeping the distillates squarely in the spotlight.

Bullish sentiment was also helped by forecasts for a stormy hurricane season that could disrupt US production this year. The Atlantic hurricane season runs from June 1 through December.

Last year's Hurricane Ivan was the most devastating to the US oil industry on record, cutting about 45 million barrels of crude oil output from the Gulf of Mexico, or about 7 per cent of the region's annual production.

Petroleum stockpiles in the United States remain well above year-ago levels, supported largely by the highest Opec production in about 25 years -- a factor that could give the oil market some short-term reprieve.

Traders were awaiting the next US petroleum stockpile data to be released on Thursday.

Analysts polled by Reuters expected on average that crude oil supplies would hold steady as higher refinery production countered strong imports, while petrol and distillate inventories would rise.

Crude stockpiles fell unexpectedly in the last data release, bringing them down from a six-year high and triggering a US$5 gain on US crude over last week.

This week's inventory data is being released a day later than usual following the US Memorial Day holiday on Monday, which marked the start of the US driving season -- the peak demand period for petrol.

Opec President Sheikh Ahmad al-Fahd al-Sabah said on Wednesday he expected the oil producers' cartel to maintain output at current rates into the third quarter of 2005.

The cartel has ramped up output to more than 30 million bpd, a 25-year high, in an attempt to build a stockpile buffer ahead of the higher-demand fourth quarter, but more hawkish Opec members have said booming output may need to be reined in.

Price rises may be limited by the impact of a stronger US dollar, which continued to firm against the euro.

- REUTERS