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Reuters: Oil hits record over $80 on tight supply

Wed Sep 12, 2007 2:41pm ET
By Richard Valdmanis

NEW YORK (Reuters) – Crude oil prices vaulted to a record high $80 a barrel on Wednesday as dealers focused on tight inventories in top consumer the United States ahead of peak winter demand.

A rash of fires at BP’s oil fields in Alaska’s North Slope added to the record run, though BP said the accidents had minimal impact to production that was already being curtailed by routine maintenance.

The surge in oil prices came a day after OPEC agreed to a small production hike in an effort to soothe consumer nations’ fears that soaring crude costs could slow economic growth.

“The OPEC outcome was not enough of a shocker to turn around a market that likes to read extremes,” said Olivier Jakob of oil consultancy Petromatrix.

U.S. light crude for October delivery was up $1.62 at $79.85 per barrel at 2:30 p.m. EDT after setting a record high of $80.18 a barrel earlier. London Brent crude was up $1.12 at $77.50 a barrel.

Adjusted for inflation, prices are still below the $90-a-barrel peaks of the Iranian Revolution in 1979 and the start of the Iran-Iraq war the following year.

Crude oil stocks in top consumer the United States fell 7.1 million barrels last week to their lowest level in eight months ahead of the winter heating season, according to the U.S. Energy Information Administration.  

Analysts had expected a fall of 2.4 million barrels.

“The reality is that the crude tightness in Europe and Asia has begun to affect the U.S. market in a big way,” said Antoine Halff, analyst at Fimat Research in New York. “In retrospect, it validates OPEC’s decision to increase production.”

Heating oil futures prices also struck a record Wednesday over $2.22 a gallon, up more than three cents.

Experts said OPEC’s deal in Vienna Tuesday to raise output by a half a million barrels per day starting November 1 was not enough to reverse rising energy prices.

“It legitimizes the excess production that was there relative to OPEC’s previous implied quota and not much more,” said Harry Tchilinguirian, senior oil market analyst at BNP Paribas.

The new OPEC output deal will reverse most of the 1.7 million barrels per day of cuts agreed by the group since October 2006 because the group was already pumping almost 1 million bpd above their nominal ceiling.

“OPEC’s announcement signals an attempt by OPEC to provide enough supplies to prevent a sharp increase in prices, but is unlikely to alter the overall tight market situation,” the U.S. Energy Information Administration said.

The oil market also was getting support from concerns over energy supplies from Mexico, where a leftist militant group blew up several fuel pipelines this week for the second time since July.

Mexico has said the blasts cut 25 percent of the country’s natural gas flow, but added that exports were unaffected.

The rebel group, known as EPR, said it will continue its attacks until the Mexican government releases two of its guerrilla organizers.

(Additional reporting by Matthew Robinson in New York and Jane Merriman in London)

© Reuters 2007. All Rights Reserved.

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