Oil: Prices hit record on storm, petrol supply

NEW YORK - Oil prices surged more than 2 per cent to break a record on Wednesday after an unexpected drop in US petrol stocks added to worries that a gathering Caribbean storm could damage US oil production platforms.

News Iran's parliament had thrown out the new president's choice for oil minister added to the market's uncertainty and drew a big question mark over oil policy in Opec's second-biggest producer.

US crude CLc1 closed at US$67.35 a barrel, up US$1.64, shortly after hitting US$67.40. Oil hit its previous record, US$67.10, earlier this month. London Brent LCOc1 was up US$1.33 at US$65.98.

US data released Wednesday morning showed petrol inventories in the world's biggest energy consumer tumbled 3.2 million barrels last week, or nearly 2 per cent, with two weeks of the peak US driving season to go.

"The petrol draw is a bullish number, without doubt. The decline was much bigger than the 1.1 million barrels draw the Street was anticipating," said Jim Ritterbusch, analyst at Ritterbusch and Associates.

The market was also watching Tropical Storm Katrina gather strength over the Bahamas and take aim at Florida's southern tip and the oil producing Gulf of Mexico, which accounts for up to a quarter of US oil output.

"The peak period for hurricanes is usually from August to September so the oil market is concerned about the risk of weather-related production losses over the coming weeks," said Kevin Norrish of Barclays Capital.

US crude stocks rose 1.8 million barrels last week, contrary to analyst forecasts for a fall. Heating oil supplies built as anticipated ahead of the winter.

US$50 OIL IN 2006

Assurances by top exporter Saudi Arabia that it would pump as much oil as its customers need failed to take the sting out of a rally that has lifted oil toward the inflation-adjusted US$82 a barrel of 1980, the year after the Iranian revolution.

And there is no sign of a let-up next year. Analysts polled by Reuters predicted for the first time on Wednesday that prices would breach US$50 a barrel in 2006.

The perceived vulnerability of supply lines is a major factor supporting prices.

Crude oil exports from Iraq's southern Basra terminal resumed late on Tuesday after a power cut earlier in the day.

In Ecuador, which mostly supplies crude to California, output is still down to around 80 per cent of its 530,000-bpd level after attacks on oil infrastructure last week.

Traders were also watching for any disruption in Nigeria, the world's eighth-largest crude exporter, after the state-pricing agency instructed the national oil company to recover costs on sales, implying consumer prices are set to rise dramatically. Previous fuel hikes have led to general strikes.

With some production in the UK North Sea and India already offline, dealers worry that Opec is pumping flat out and would strain to make up any unexpected outages.

- REUTERS