MercoPress. South Atlantic News Agency

Tight oil supply with no ceiling for prices

Crude-oil prices seem to have no ceiling and jumped to a new high above 63 US dollars a barrel on Monday, reflecting the market's persistent uneasiness about strong global demand and tight supplies.

Traders pinned the latest rally on a wide-range of factors including security concerns in Saudi Arabia and refinery shortages in the United States plus the fact that U.S. gasoline demand continues to rise in spite of prices that average over 2.30 US dollars a gallon.

Oil analyst Marshall Steeves at New York-based brokerage Refco Group Inc. said oil and gasoline prices were likely to keep rising until there were signs of a significant drop off in demand, or a sharp slowdown in economic growth.

"We're clearly not there yet," he said.

"The US economy looks healthy and it's safe to infer that the demand for oil and fuel will remain pretty firm and that the price of oil should be helped along as well" was the majority feeling in the commodities markets.

Broadly speaking, those jitters are tied to the fact that worldwide consumption is expected to average more than 84 million barrels a day in 2005, leaving only about 1.5 million barrels a day of spare production capacity that could be called upon in an emergency to offset a prolonged supply disruption.

Given such a slim margin in the supply chain, a large premium has been priced into every barrel of oil sold on futures markets.

Several factors put the market on edge Monday: the U.S. Embassy and consulates in Saudi Arabia were closed after authorities announced Sunday a security threat against U.S. government buildings inside the world's largest petroleum-producing country; a fire broke out at a unit of Sunoco Inc.'s 330,000 barrels-a-day Philadelphia refinery over the weekend following a string of refinery fires and other snags over the past two weeks that have not severely diminished supply, but have nonetheless made oil traders nervous; suspected rebels launched renewed attacks overnight on pipelines in eastern India, leaving oil operations in the remote region in critical shape.

The market is also keeping a close eye on tropical storms in the Gulf of Mexico, fearing a repeat of last year's Hurricane Ivan, which damaged oil facilities and caused output in the region to drop for several months.