Oil prices hit new record high of $65.23 per barrel

SINGAPORE (AP) – Oil prices rose to a new high of $65.23 a barrel in Asian trading yesterday after the US midweek inventories report showed a decline in gasoline stocks and on concerns that a string of refinery shutdowns in the US will make it difficult for gasoline supplies to meet peak summer demand.

Prices were also lifted by heightened tensions between Iran, OPEC’s No. 2 producer, and Western countries, as the Islamic republic resumed full operations at its uranium conversion plant. It warned yesterday that threats of UN sanctions against Tehran would lead to a "path of confrontation."

Mid-afternoon in Singapore, light, sweet crude rose 33 cents to $65.23 a barrel in Asian electronic trading on the New York Mercantile Exchange. On Wednesday, the contract rose $1.83 to close at $64.90 a barrel, after climbing to an intraday $65 high.

Gasoline was trading at a high of $1.9136, up by 1.73 cents, while heating oil rose 1.25 cent to $1.8513.

Crude futures have risen 14 percent in the last three weeks, driven by an array of concerns about supply disruptions: US and Venezuelan refinery outages, the Atlantic hurricane season’s impact on production in the Gulf of Mexico, the death of Saudi Arabia’s King Fahd as well as Iran.

"Hedge funds continue to roll over their large energy investments from September to October, and many are predicting prices of $65-$70 per barrel as they take more length," said Energyintel analyst George Orwel in a research note.

While oil prices are about 46 percent higher than a year ago, they would need to surpass $90 a barrel to exceed the inflation-adjusted peak set in 1980.

Analysts said the market is discounting fundamentals that show global oil supply is adequate, and demand growth is slower thanexpected. Instead, short-term worries have dominated the market, as a flurry of speculative buyers entered the market betting that demand will outstrip supply.

"In such a market environment where the price is so reactive to short-term events, it’s hard for participants to want to sell," said energy analyst Victor Shum at Texas-headquartered Purvin & Gertz in Singapore.

"This build up in momentum has attracted a lot of investment money into the market," Shum said. "The focus has been on declining gasoline stocks especially as this is the US summer driving season. The fundamental supply-demand situation has been secondary."

The weekly US petroleum supply snapshot on Wednesday showed a drop in gasoline stocks by 2.1 million barrels to 203.1 million barrels, likely the result of at least seven US refinery outages in less than three weeks.

It was sixth decline in a row for gasoline inventories, and that fueled concern among some traders.

Energy markets have been extremely jumpy about a spate of refinery outages in recent weeks. Some traders said the recent US refinery troubles - the latest reported at BP PLC’s plant in Texas City on Wednesday - is evidence the industry and its aging infrastructure are having difficulty maintaining output at high levels.

But analysts and industry officials said refinery snags are not out of the ordinary for this time of year, when plants run hard to meet peak gasoline demand.

On Wednesday, the US Energy Information Administration also reported a rise in crude inventories but it seemed to be disregarded by market players, because the stocks build occurred mostly in the US West Coast, analysts said.

Meanwhile, the International Atomic Energy Agency, the UN’s nuclear watchdog, will meet Thursday to discuss a resolution to urge Iran to stop nuclear processing, which Europe and the United States fear will lead to weapons of mass destruction.

Iran’s envoy to the agency warned that referring the matter to the UN Security Council – which could result in sanctions against them – would lead to a "path of confrontation." Tehran says its nuclear program is peaceful, aiming only to produce electricity.