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Oil nears $40 on gasoline, security fears

World oil prices set fresh 13-year highs on Thursday, within a whisker of $40 a barrel for U.S. crude, stoked by worries about summer gasoline shortages in the United States.
/ Source: Reuters

World oil prices set fresh 13-year highs on Thursday, within a whisker of $40 a barrel for U.S. crude, stoked by worries about summer gasoline shortages in the United States.

Fears of possible sabotage attacks on oil facilities in the Middle East also helped to keep prices strong.

U.S. light crude hit a high of $39.97 a barrel before easing to settle 20 cents lower at $39.37 a barrel, while London Brent fell 19 cents to end at $36.53 a barrel, down from a high of $37.20 which was the loftiest level since October 1990.

U.S. gasoline futures ended nearly unchanged after hitting another record level of $1.3290 a gallon.

Despite the profit-taking dip, analysts predicted $40 oil was still imminent.

“I think we’re going to have a four in front of the oil price very soon. It’s certainly pretty ugly for the oil consumers of the world,” said David Thurtell, commodities strategist at Commonwealth Bank of Australia in Sydney.

Jitters that violence in the Middle East will disrupt supply, low U.S. gasoline stocks and rampant demand growth in China have driven U.S. crude prices toward the record $41.15 hit in October 1990 after Iraq invaded Kuwait in the crisis that led to the Gulf War.

“Terrorism fears are causing a permanent risk premium to be built into the market,” said independent energy consultant Geoff Pyne.

Traders worry that weekend shootings at a Saudi Arabian petrochemicals plant in Yanbu and attempts a week earlier to bomb Iraq’s key Basra oil export terminal might be precursors to a bigger attack on vital oil facilities in the Middle East, which pumps about one-third of global daily crude output.

Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo, forecast that crude was likely to push up to $43 to $45 by mid-year.

“Last year we hit $39.99 before the war, which was largely psychological. Now we need to look at the fundamentals and they are very strong,” Emori said. Prices spiked close to $40 during intraday trading in February 2003 as U.S.-led forces prepared to attack Iraq.

U.S. gasoline consumption is at the cutting edge of rising consumption. U.S. refineries are struggling to meet demand that in the past four weeks rose 3.4 percent against the same period last year to 9.1 million barrels a day, suppressing stocks of the motor fuel well below the five-year seasonal average.

The peak summer driving season in the U.S. runs from Memorial Day in late May to Labor Day in early September.

The United States, with less than five percent of the world’s population, accounts for 45 percent of the world’s gasoline consumption of just over 20 million barrels daily, U.S. government figures show.

While U.S. motorists are paying a record $1.84 a gallon, retail prices are only a third of average western European levels and have had no impact on demand.