Oil: Price near US$71 on US thirst for fuel

NEW YORK - Oil held near US$71 a barrel today as US petrol demand was still on the rise despite near-record prices.

The shutdown of a stretch of a key shipping channel in Louisiana, which the Coast Guard said should last a week, also supported petrol prices.

Consumption in the United States, which uses more than 40 per cent of the world's petrol, is seen by investors and analysts as a bellwether for oil demand and price direction.

Data this week showed US drivers are buying more motor fuel than last year despite paying almost US$3 a gallon at the pump. Demand in the United States, consumer of a quarter of the world's crude oil, has been rising for 23 years.

US crude settled three cents higher at US$70.87, after rising US$1.50 over the past two days. London Brent was down 2 cents at US$69.93.

The US Coast Guard said today a closure of the Calcasieu Shipping Channel in Louisiana was extended to nine miles after heavy rains caused an oil spill. The channel connects three refineries near Lake Charles, Louisiana with the Gulf of Mexico.

Adjusted for inflation, oil is at its most expensive since 1980, the year after the Iranian revolution. It is within sight of its US$75.35 record high hit in April

"With the US and global economies still showing strong signs of resilience, expectations for oil demand growth in 2006 and 2007 remain robust," analysts at Deutsche Bank said.

Citibank analysts said US summer petrol demand was only just starting to kick in.

"The chances are that this week marked the seasonal high water level for petrol inventories, as peaking summer driving season demand begins to eat into storage levels between now and the end of September." Andrew Harrington, analyst at ANZ Bank in Sydney, said US petrol inventories were growing less than expected.

"And there is a longer term fear that any storm or hurricane activity could disrupt supplies. That's setting up a very nervous market." Opec

Opec output edged 300,000 barrels per day higher in June to 29.7 million bpd because of increases in the group's two biggest producers, Saudi Arabia and Iran, oil consultant Petrologistics told Reuters on Friday.

The exporter group has kept its official output ceiling, binding the 10 members excluding Iraq, at a near-maximum 28 million bpd for almost a year in response to a rally that has taken oil from US$20 at the start of 2002 to over US$70.

Oil's rapid rise was sparked by strong demand in the United States and number two consumer China. It has been fueled by a shortage of refineries to produce motor fuels and real or feared supply disruptions in Iraq, Nigeria and Iran.

Deutsche Bank raised its 2007 US crude oil forecast to US$62 a barrel from US$50.

"Supply and demand fundamentals in the energy markets are tight in the short-term, and rising costs and resource nationalism point to higher long-term prices," the bank said.

"Geopolitical and extreme weather events underscore upside risk." (Additional reporting by Maryelle Demongeot in Singapore and Janet McBride in London)

- REUTERS