Oil: Prices up 2 per cent after US refinery blast

Oil prices rose on Thursday after a deadly explosion at the third largest refinery in the United States triggered worries over petrol supplies ahead of the summer driving season.

US light crude settled up US$1.03 to US$54.84 a barrel, after falling more than US$3.50, or 6 per cent, in the previous two sessions. Brent crude oil futures were up 89 cents to US$53.93 a barrel.

Oil markets will be shut on March 25 for Good Friday.

Prices rose following Wednesday's blast at a petrol unit in BP's Texas City refinery -- the third-largest in the United States -- in which at least 15 people were killed.

The explosion damaged an isomerisation unit, which upgrades the quality of petrol, but did not affect other operations at the 470,000 barrel per day (bpd) refinery, BP said.

BP Chief Executive John Browne said the incident cut no more than 5 per cent of the plant's petrol production, but energy analysts said the explosion pointed up the market's vulnerability to unexpected supply problems.

"Given the abject lack of spare refining capacity, especially at this time of year, a strong reaction should be expected," said Fimat USA bank in a report.

New York petrol futures surged to a record high of US$1.6080 a gallon in early electronic trade Wednesday, but settled Thursday at US$1.5992 a gallon.

A deep draw in US petrol stocks reported by the US government last Wednesday indicated that demand has not been deterred by record prices at the pump, analysts said.

Petrol inventories fell 4.1 million barrels last week and are down 3 per cent over two weeks, although still 7.5 per cent above last year's levels.

By contrast US crude oil stocks rose 4.1 million barrels to 309.3 million barrels last week, their highest level since July 2002, US government data showed.

DOLLAR, CRUDE STOCKS WEIGH

Oil prices have fallen from last week's record peak of US$57.60 a barrel, pressured by a rebound in the dollar following the Federal Reserve's move to increase interest rates this week.

Oil's surge this year was pegged partly on the dollar's weakness, which encouraged funds to switch money into commodities.

Worries over inflation have also emerged. The government said on Wednesday that a big jump in energy costs pushed US consumer prices up 0.4 per cent in February.

Treasury Secretary John Snow said on Wednesday he was unhappy with current oil prices but they would not derail the US economy.

"They're not of the sort that... are going to knock us out of the recovery we are in now, but they are certainly unwelcome," Snow said.

Oil has soared more than US$10 since the start of the year and is up around 45 per cent from a year ago, with galloping demand from China and the United States stretching global output and refining capacity.

The Organisation of the Petroleum Exporting Countries looked likely to put a decision on a second 500,000-bpd supply increase on the backburner after prices fell below the group's US$55 threshold.

Opec President Sheikh Ahmad al-Fahd al-Sabah said the time had not come to raise output, although he continued to consult with members one week after an initial 500,000-bpd output increase failed to curb runaway prices.

A second increase may do little to bring down prices as analysts fear higher production will leave the cartel little spare capacity to deal with unexpected supply outages.

- REUTERS