Oil firmed almost $1 to above $97 a barrel on Friday, within sight of its record high, bolstered by a fall in US fuel inventories and mounting tension in Pakistan and northern Iraq.
Prices surged to a one-month high of $97.79 on Thursday after US crude and distillates inventories fell more than expected and in response to the assassination of Pakistani opposition leader Benazir Bhutto.
“Oil is up on the greater-than-anticipated stockdraws in crude oil and heating oil as we head into peak winter demand,” said Harry Tchilinguirian, senior oil market analyst at BNP Paribas.
“Geopolitical tension in the Middle East and central Asia is a broader supportive factor.”
US crude was up 90 cents to $97.52 a barrel by 1453 GMT. It hit a record high of $99.29 on November 21. London Brent rose 80 cents at $95.58.
Crude oil inventories in the US, the world’s top oil consumer, now stand at their lowest in nearly three years after falling by 3.3 million barrels in the latest week.
Stocks of distillates including heating oil fell by 2.8 million barrels, more than the 800,000-barrel decline expected by analysts, the Energy Information Administration (EIA) said.
The market has also got a lift from developments near the Middle East, source of almost a third of the world’s crude oil.
Bhutto was assassinated on Thursday as she left an election rally, putting January 8 polls in doubt and sparking anger in her native Sindh province.
The assassination also triggered a flight to less risky assets such as gold, which rose to a one-month high, and prompted a further drop in the dollar.
Pakistan is not a major oil producer and any unrest within its borders is unlikely to directly affect oil flows, but dealers say the additional political uncertainty in the region has increased the risk premium on prices.
The developments in Pakistan came days after Turkey began raids on Kurdish guerrilla targets in northern Iraq, which raised the risk to regional supply, although most of Iraq’s oil exports flow via its southern ports.
Oil has rallied more than 58% since the start of the year, boosted by growing investor appetite for commodities, the falling US dollar and supply restraint by Opec exporters.
The falling dollar has supported commodities denominated in the US currency, raising the purchasing power of non-dollar nations and reducing the purchasing power of producer revenues.
Concerns about the impact of the credit crisis on US oil demand and about a warmer-than-usual winter that would curb heating oil consumption have barely slowed oil’s rally. (Reuters)
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