Oil: Price surges past US$73 in commodities-wide rally

NEW YORK - Oil rose more than US$1 and overtook US$73 today as increased optimism about economic growth in the United States, the world's top energy consumer, ignited a rally across commodities and equity markets.

US crude settled up US$1.33, or 1.8 per cent, at US$73.52 a barrel as petrol shot higher ahead of the US Independence Day holiday. London Brent crude settled at US$72.88, up US$1.47, or 2.1 per cent.

The US economy grew at a revised 5.6 per cent annual rate in the first quarter, the fastest rate in 2-1/2 years, while inflation was kept in check.

The positive outlook helped lift gold futures by 2 per cent and copper by over 4 per cent while equity markets in the United States also climbed higher.

The Federal Reserve today raised benchmark US interest rates a 17th straight time and said inflation risks remain even though slowing economic growth should help ease price pressures.

Inflation worries, exacerbated by high pump prices, have added a bearish element to surging oil prices as traders fear global oil demand growth could weaken.

But that has not deterred American drivers, who are expected to take to the road in record numbers during the July 4th holiday weekend.

"Support into the July 4th holiday driving frenzy should be enough to dampen any negative impact from the central bank in the immediate term anyway," said Mike Fitzpatrick at Fimat.

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

"There is no doubt that the market is getting support from the idea that petrol demand is strong enough to increase the odds of a summer supply crisis," Fitzpatrick said.

Prices also drew strength from the continued closure of a key shipping channel in Louisiana, which has limited output at three refineries.

The US government has agreed to lend 750,000 barrels of crude oil from the Strategic Petroleum Reserve to refineries owned by Citgo Petroleum Corp. and ConocoPhillips, which have had supplies reduced because of the shipping problems.

The US Coast Guard said yesterday about nine miles of the channel had reopened and about 11 miles remained closed.

Supply disruptions, whether real or threatened, in producer countries and growing demand have fuelled fund buying that has driven oil from US$20 at the start of 2002. Adjusted for inflation, oil is at its most costly since 1980.

- REUTERS