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Oil Prices Surge, Marking Seventh Straight Gain

June 02, 2005|From Associated Press

Oil prices jumped by more than $2.50 a barrel Wednesday in a rally that brokers attributed to fears of tight supplies at the end of the year.

It was the seventh straight trading session in which crude oil futures have risen, lifting prices above $54 a barrel to their highest level in a month.

After closing at a record $57.27 a barrel April 1, oil prices cooled off in mid-May, falling below $47 a barrel amid signs of slowing economic growth. Now the market psychology appears to have flipped again.

"It doesn't make a lot of sense," said John Kilduff, senior oil analyst at Fimat USA. "But fears about fourth-quarter demand are feeding on themselves and a lot of people are scared. They don't want to miss the boat again if it looks like crude is going to go back up to $58."

Concerns are rising that strong demand for diesel will lead to a shortage later this year of that fuel and other distillates, including heating oil. There also was talk Wednesday of a refinery snag in Texas. But the supply and demand fundamentals are basically unchanged from two weeks ago, when oil prices were nearly $8 a barrel cheaper.

Kilduff said that "$60 a barrel, which looked highly unlikely just last week, is now once again within the realm of reason."

Light, sweet crude for July delivery rose $2.63, or 5%, to $54.60 a barrel on the New York Mercantile Exchange.

The price of crude is 24% higher than a year ago.

Oil prices have been high and volatile for almost two years because there is little excess production capacity worldwide, leaving the market more vulnerable to unexpected supply disruptions or stronger-than-anticipated demand growth.

Brokers traced the start of Wednesday's rally to heating oil futures, which shot up 9.05 cents to $1.54 a gallon. They said the gains then spread to other commodities. Gasoline futures climbed 7.72 cents to $1.54.

Demand for diesel is strong because of economic growth.

Oil analyst Andrew Lebow at Man Financial Inc. said strong demand could limit the buildup of distillate fuel inventories, leaving heating oil supplies tight next winter.

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