Oil: Prices above US$55 on US refinery problems

NEW YORK - Oil jumped back above US$55 a barrel on Friday as traders said sustained demand and refinery outages could strain US petrol supplies ahead of peak summer motoring demand.

A spate of violence in the Middle East also revived what dealers called a "terror premium," in which oil prices move higher on fears of potential attacks on energy infrastructure in the oil-rich region.

US light crude settled up US$1.19, or 2.2 per cent, to US$55.39 a barrel, making a four-day rally that has added over US$4 to prices.

Oil is 25 per cent above levels at the end of 2004 and nearing the all-time peak of US$58.28 struck earlier this month. London Brent gained 96 cents to US$54.97 a barrel.

A hefty surplus in US crude oil inventories and signs that the Organisation of the Petroleum Exporting Countries is boosting output again have done little to calm markets worried about insufficient transport and heating fuels to meet demand later this year.

"It's a product-led market," said Colin Tang, an oil trader with French investment bank Calyon in Singapore.

"Physical crude is trading at big discounts to the major markers, which implies there's plenty of crude out there. "

Dealers are increasingly anxious about oil product supplies, particularly in the United States, where a series of refinery glitches has raised fears that plants -- already operating near capacity -- may struggle to sate rising demand.

US petrol prices jumped nearly 4 cents on Thursday and edged higher to US$1.6523 a gallon on Friday.

"If you believe the worldwide growth in the requirement for oil products will continue and on top of that you have finite refining capacity, then you have to say the cracks are the thing to own," Tang said.

Experts said there was also concern over flaring violence in oil-rich countries of the Middle East.

"There is concern that some terror premium is creeping into prices after the Mecca incident on Thursday and the continuing violence in Iraq," said Phil Flynn, analyst at Alaron Trading. "For this reason, nobody wants to go home short" ahead of the weekend, he added.

Two suspected militants and two Saudi security personnel were killed in a fierce gunfight on Thursday in the Muslim holy city of Mecca, the Interior Ministry said.

GLITCHES

Traders said a petrol-making unit at a ConocoPhillips' refinery in Louisiana would be down for another week after failing to restart following maintenance, adding to a spate of problems in Texas, Louisiana and Kansas.

Petrol inventories in the world's biggest consumer are 5 per cent higher than a year ago, but showed a surprisingly large drop last week, a time when supplies should be building ahead of the peak usage summer season that starts at the end of May.

Crude stockpiles fell last week, their first decline after a nine-week climb put them at the top end of their five-year range. Crude stocks have been bolstered by Opec efforts to top up inventories to create a buffer for anticipated stronger demand in the second half of the year.

Saudi Arabia has told customers it would increase output again in May after ramping up to 9.5 million barrels per day (bpd) last month. But even Oil Minister Ali al-Naimi conceded that the kingdom's ability to control prices had waned.

"Petroleum product markets are having a significant influence on crude prices at the global level, more so than at any time before," he said on Thursday.

With the world straining to produce and refine enough oil to meet rapid oil demand growth in Asia, energy security is moving up the agenda for big consumers, including the United States.

The US House of Representatives on Thursday approved an US$8 billion energy bill with long-term incentives to boost domestic production of crude oil, natural gas, coal, nuclear and other energy sources. The bill now moves to the Senate.

- REUTERS