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Thu 25 Oct 2007 04:55 PM

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Oil soars back toward record high

Prices rise after slide in US oil stocks renews fears of energy crunch during winter heating season.

US oil surged more than $1 towards $89 and Brent crude hit an all-time high on Thursday, after a slide in US oil stocks renewed fears of an energy crunch during the northern hemisphere's winter heating season.

London Brent was up $1.42 at $85.79 a barrel at 1045 GMT, having hit a record $86.28. US crude was up $1.53 at $88.63 after a brief test of $89. It is back within striking distance of the $90.07 peak it reached last Friday.

News that crude stocks in the world's top oil consumer fell 5.3 million barrels last week, instead of an expected increase of 800,000 barrels, has buoyed US oil.

Prices are up 45% this year and have more than quadrupled since the start of 2002.

Supply concerns, unprecedented dollar weakness and a shift of investor money into energy and commodities from other asset classes have boosted the market.

Assaults by Turkish troops on Kurdish separatists in northern Iraq have added to tension in the oil-rich Middle East.

But Opec's secretary general said there was no shortage of oil. And a weak dollar meant the Organisation of the Petroleum Exporting Countries was far from reaping a windfall.

"There is a lot of oil in the market," Abdullah Al-Badri told reporters in Beijing. "It is not really a bonanza for us, $90 a barrel."

Opec members, who have already agreed to increase production by 500,000 barrels per day (bpd) from November 1, will meet informally in Saudi Arabia next month. Some within the group have suggested a further 500,000 bpd output increase may be discussed to calm the market and soften economic blows.

The chief financial officer (CFO) of Royal Dutch Shell agreed with Opec that speculative investors had played a key role in pushing prices towards their inflation-adjusted peak of $101.70. That was the average price in April 1980, the year after the Iranian revolution and at the start of the Iran-Iraq war.

"The price seems to be driven by some speculation," Shell CFO Peter Voser said at a results news conference, adding prices contained a "political premium".

Gains have been limited only by concerns a US housing slump could draw the economy into recession and limit demand.

"That stocks fell was a huge surprise for us. Stocks are not adequate to supply all parts of the US and Europe ahead of the winter season," said Yusuke Seta at Fimat Japan.

Edward Meir, an analysts at MF Global, said another inflow of investment was possible.

"We now could see a stronger tone set in for the balance of the week, as sidelined money presumably moves back in towards the long side in a possible attempt to take out the old WTI highs," he wrote in a research note.

"However, lest we get too starry-eyed, a major decline in the equity markets could still short-circuit any rally in energy." - Reuters

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