LONDON – World oil prices surged nearly 4 percent on Friday on worries the U.S. hurricane season would continue to hamper energy production and imports in the Gulf of Mexico (search), delaying vital stock-building ahead of winter.
Fund buying ahead of the weekend and renewed concern about the fate of Russian oil company Yukos (search) added to bullish sentiment.
U.S. light crude gained $1.77, or nearly 3.9 percent, to settle at $45.59 a barrel on the New York Mercantile Exchange (search), while London's Brent crude futures were up $1.70 at $42.45 a barrel.
Hurricane Ivan's (search) assault on the Gulf Coast appeared to have caused only minor damage to oil facilities. But, as Ivan abated inland, Tropical Storm Jeanne was following and there was speculation it would disrupt some imports.
"We expect upside price pressure to persist," Barclays Capital said in a report. "Although (Jeanne) is expected to miss the Gulf coast, it could disrupt tankers."
The U.S. Minerals Management Service estimated oil companies shut a total of nearly 5.2 million barrels of production this week as a precautionary measure against Ivan. That amount is only slightly below the amount of oil the entire United States produces in a day.
Nearly 22.9 billion cubic feet of natural gas production was also shut this week, while the closure of Gulf ports prevented millions of barrels of oil imports from entering the country.
By Friday afternoon about 73 percent of gulf oil output and 42 percent of its natural gas production was still shut.
Merrill Lynch analysts said oil and natural gas stocks in coming weeks would be impacted by the closures.
"The loss of production over this period, coupled with the disruption to imports offloading in the Gulf of Mexico being the key factors," they wrote in a report.
A string of storms in the past month has reduced U.S. crude inventories. The Energy Department on Wednesday said crude stocks had fallen last week for the seventh week in a row, at a time when inventories should start to build.
The temporary halt in refinery operations was also likely to have curtailed vital production of winter heating fuels, stocks of which are below their five-year average.
Crude inventories, now at a six-month low, are likely to have fallen again this week in Ivan's wake, analysts expect.
The OPEC cartel, which has been pumping at full throttle in recent months, said its huge supplies would help global oil stockpiles to grow by over 1 million bpd in 2004.
But analysts say a refining capacity shortfall could cause heating fuel prices skyrocket, if sufficient stocks are not built before the Northern Hemisphere winter.
"The shortage of refining capacity is a very serious bottleneck squeezing prices higher, despite crude 'feedstock' being relatively abundant," Edward Meir of Man Energy said.
News that a Moscow court had upheld a decision to seize five refineries belonging to oil company Yukos, added to the bullish sentiment, oil dealers said.
The company, with 1.7 million bpd in crude production, has been battling bankruptcy as the Russian government seeks to collect about $7 billion in back taxes.
"There is Yukos, there are the storms and there are the usual concerns," one trader said. "No one wants to go short into the weekend."