Oil prices surge more than $2 a barrel
Oil prices surged nearly $2 a barrel Wednesday following two bombings in the capital of Saudi Arabia and after the U.S. government reported that winter fuel supplies shrank last week. Light crude for February delivery rose $1.87, or 4.4 percent, to settle at $43.64 per barrel on the New York Mercantile Exchange.
While down considerably from the October peak above $55 a barrel, crude futures are 33 percent more expensive than a year ago, contributing to higher prices for gasoline, heating oil and other fuels.
Fears of supply interruptions in Saudi Arabia, Iraq, Russia and Nigeria have underpinned higher oil prices throughout 2004, with markets especially volatile due to surprisingly strong demand and a tight global supply cushion.
Oil prices were lower Wednesday morning as traders seemed comforted by forecasts calling for mild temperatures later in the week, allowing them to essentially shrug off a report about the nation’s declining inventories of crude oil and distillate fuel, which includes heating oil.
But nighttime attacks launched by militants and a suicide driver in Saudi Arabia sparked an afternoon rally in oil prices. The rally was magnified by thin trading volume, analysts said, but accurately reflected the market’s extreme sensitivity to instability in the world’s top oil producing and exporting nation.
“This puts a higher floor under prices than we otherwise would have had,” said John Kilduff, an analyst at Fimat USA in New York.
A suicide attacker tried to drive his bomb-laden car into the Interior Ministry complex, and militants set off another bomb and exchanged fire with police late Wednesday in Riyadh, capital of a kingdom at war with Muslim extremists.
The string of attacks came two weeks after al-Qaida leader Osama bin Laden issued a message urging his followers to focus attacks on the kingdom. Militants have staged a number of attacks in recent weeks, seeking to show they are still a force after Saudi forces killed or arrested many senior terror suspects.
Early Wednesday, a suspected militant was killed in Riyadh after tossing a bomb and shooting at security agents, according to a security official. On Tuesday, another suspect and a bystander were killed in a shootout in the same Riyadh neighborhood, according to an Interior Ministry official.
There is a so-called terror premium embedded in today’s oil price, analysts say, and it accounts for the possibility that the flow of oil from Saudi Arabia and other countries might be disrupted by terrorists.
“If there’s one worry that’s left for the market, it’s exactly this sort of situation,” said Kilduff, who believes the potential for weather-related winter fuel shortages are not as great as they were just a few weeks ago.
Earlier in the day the U.S. Energy Department reported that the nation’s inventory of distillate fuel, which includes heating oil and diesel, fell last week by 800,000 barrels to 119.1 million barrels. That leaves distillate supplies nearly 13 percent below year-ago levels.
While heating oil supplies are 12 percent below last year’s level at 48.9 million barrels, they are slightly above the five-year average.
“It’s still not a great scenario, but it’s not the worst case scenario,” Kilduff said.
Oil prices are down about 25 percent from their late October high above $55 a barrel. The lack of extremely cold weather so far this winter has eased concerns about the tight supply of heating oil.
Crude oil inventories declined by 800,000 barrels to 295.1 million barrels last week, though supplies are 8 percent above year-ago levels, according to the Energy Department.
Crude futures dropped 6 percent on Monday on forecasts calling for warmer weather in the United States, which sent futures prices for heating oil and natural gas plummeting too.
On Wednesday, heating oil futures rose 5.53 cents to $1.2774 per gallon on Nymex, where gasoline futures climbed 3.86 cents to $1.0843 per gallon and natural gas futures jumped 6.1 cents to $6.402 per 1,000 cubic feet.
In London, Brent crude fell 90 cents to $39.17 per barrel on the International Petroleum Exchange.
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Associated Press Writer Abdullah Al-Shihri in Riyadh, Saudi Arabia, contributed to this report.