Oil's rise sparks profit fears

Dean Bracewell

Crude oil prices set new records above US$62 ($92) a barrel yesterday, renewing concerns that fuel costs will dent corporate profits around the globe.

The price surge came amid speculation Hurricane Dennis might disrupt shipments along the US Gulf coast.

It also came amid wider concerns about the global supply of oil, with the Organisation of Petroleum Exporting Countries close to production capacity.

Oil prices are up 9 per cent from a week ago and 46 per cent from the start of the year.

Air New Zealand may lift fuel surcharges and prices at the petrol pump may rise yet again.

At listed courier firm Freightways, managing director Dean Bracewell said fuel costs were "exceptionally high" and the company was forced to pass them on to customers.

At Waste Management, collections manager Ray Harris said a diesel price rise of 50 per cent in the past 18 months had had a significant effect on the waste collections business.

"At the end of the day we have to recover the costs from our customers."

Bank of New Zealand chief economist Tony Alexander said transport and fishing companies were hurting but higher petrol prices did not seem to be affecting consumer spending.

The domestic economy was firm and the strength of the Kiwi dollar - still high, even including recent falls - had helped to insulate the country.

Crude oil for August delivery rose as much as 34USc, or 0.5 per cent, in after-hours electronic trading to US$61.56, the highest since trading began in 1983 on the New York Mercantile Exchange.

Global oil consumption is forecast to average 84.3 million barrels a day this year, according to a report by the International Energy Agency.

Rising demand - especially in the United States and China - has used up almost all of the world's spare crude oil production capacity.

"There will be nothing to set a price ceiling until we start to see demand restraint," said Adam Sieminski, chief energy economist at Deutsche Bank in New York.

Oil prices rose to a record last week on concern that rising consumption will strain the ability of US refiners to raise stockpiles before demand peaks in the fourth quarter.

Speculators are guessing that refiners will be hard pressed to build up enough inventories of distillates - including heating oil and diesel - before the northern hemisphere winter, causing prices to spike as consumers worldwide scramble for heating fuels.

Crude oil production by OPEC grew an average of 130,000 barrels a day in June, according to a Bloomberg survey of oil companies, producers and analysts.

Daily production by the group, which pumps 40 per cent of the world's oil, averaged 30.08 million barrels, the highest since October, when members pumped 30.54 million barrels a day, a 25-year high, based on US Energy Department records.

OPEC would need to boost its production to 50 million barrels a day by 2020 to meet rising global demand, the Financial Times said, citing the International Energy Agency.

OPEC may have an "extremely difficult time" achieving this as there is a 4.5 million barrels a day gap between what is needed and what Saudi Arabia, the group's biggest producer, could supply, the newspaper said, citing unidentified Saudi energy officials.

Saudi, which currently pumps 9.5 million barrels a day, may be able to reach 12.5 million barrels a day by 2009, and probably 15 million barrels a day beyond that, the FT said.

Gasoline for August delivery rose 10.81USc, or 6.4 per cent, to US$1.7899 a gallon in New York, the highest closing price since the contract was introduced in 1984.

It was at US$1.7933 in after-hours trading, 40 per cent higher than a year ago.

Heating oil for August delivery rose 6.24USc, or 3.6 per cent, to US$1.7948 a gallon, the highest close since 1978. Futures touched US$1.80 a gallon, an intraday record in after-hours trading.