Oil prices surged above $51 a barrel yesterday as a prolonged US production outage following Hurricane Ivan attracted fresh speculative buying.
US light crude set a high of $51.29 a barrel, a gain of $1.38, in afternoon trading. It later eased to $51.05. London Brent moved to a record $47.40 a barrel.
Supply anxiety is building ahead of the northern hemisphere winter, when demand for heating oil surges. Inventories of crude and distillates in the world's top energy user, the United States, are running as much as 4 per cent below last year.
"It looks like the market is convinced we need to catch up for the winter and that because of the slow recovery in the Gulf of Mexico, we have lost valuable time," said Mr Phil Flynn, analyst at Alaron Trading in Chicago.
In the US Gulf of Mexico, about 453,000 barrels per day, or 27 per cent, of oil output remains shut, the US Minerals Management Service said yesterday.
US consultancy PIRA Energy estimates at least 40 million barrels equivalent of oil and gas will be deferred by Hurricane Ivan.
PIRA said it calculates 17 million barrels of oil, four million barrels of natural gas liquids and 110 billion cubic feet of natural gas will be shut in by the hurricane. The estimate includes an assumption about Ivan losses in the rest of October and into November.
Dealers will now look to US oil inventory data, due today, to gauge how comfortable oil supplies are in the weeks approaching winter.
The weekly report by the Energy Information Administration was expected to show crude stocks rising in the week to October 1st by 2.2 million barrels from the week earlier.
Oil prices had eased on Monday after Nigerian rebels withdrew a threat to target the country's over 2.3 million bpd of oil production facilities, but concerns lingered over the OPEC member's stability in the near term.
Policymakers around the globe are watching the price of crude oil warily to see if record highs will threaten world economic recovery. A top White House economic adviser said yesterday that the current surge in price does not pose a major threat to the US economy.
Council of Economic Advisers chairman Mr Gregory Mankiw said every $10 increase in the cost of the barrel of crude cuts gross domestic product growth by just one-third to one-half a percentage point over a year or two.
"Such a decline would be an unwelcome headwind for the continuing recovery but it would not reverse the upward trajectory that we've been on," Mr Mankiw told a conference.
