Oil: Price rises towards US$74, US demand supports price

LONDON - Oil rose to nearly US$74 a barrel today, within sight of record highs, on a positive outlook for oil demand and economic growth in top consumer the United States.

American drivers are expected to take to the roads in record numbers over the US July 4 holiday weekend, despite high fuel prices. The US economy grew at the fastest rate in 2-1/2 years in the first quarter.

"All the growth numbers have been coming through stronger than expected," said Kevin Norrish, an oil analyst at Barclays Capital. "That's very much reflected in the oil demand as well." US crude settled 41 cents higher at US$73.93 a barrel after closing early ahead of the US Independence Day holiday. The high was notched at US$74.15. London Brent crude rose 63 cents to US$73.51.

Metals and other commodities also rallied as investor fears over interest rate rises and a possible weakening of the US economy receded. Copper jumped almost 4 per cent in London and gold rose.

"It's money coming back in to all capital markets, after fears the Fed could put the economy into recession," said John Brady of ABN AMRO in New York. "We expect to see new money flooding in at the start of the third quarter -- seasonally the strongest of the year."

US crude has risen from US$20 in January 2002 and hit a record high of US$75.35 in April as rising demand strained supplies and investors poured money into commodities.

Prices were drawing strength today from the continued closure of a key shipping channel in Louisiana, which has limited output at three refineries at a time of peak summer petrol demand.

A Citgo Petroleum Corp. spokesman said the rest of the Calcasieu Ship Channel, part of which resumed operations this week, may reopen to tug and barge traffic later Friday if four vessel test runs go well.

Underlining supply concerns caused by recent refinery glitches, US inventories of petrol fell by 1 million barrels last week, while crude stocks declined 3.4 million barrels.

Iran's row with the West over its nuclear work, which traders fear could cut supplies from the world's fourth-largest oil exporter, has also supported prices this year.

The Group of Eight industrialized nations told Iran yesterday to give a "clear and substantive response" next week to an offer by major powers over its nuclear plans. Tehran said that was unlikely.

- REUTERS