NEW YORK – Oil futures surpassed $55 a barrel Tuesday as traders focused on the government's upcoming petroleum supply report, which is expected to show only a modest build in heating oil inventories.
Crude for December delivery was 64 cents higher at $55.18 on the New York Mercantile Exchange (search), where November heating oil was up 0.47 cent at $1.57 per gallon.
Traders were cautious ahead of Wednesday's scheduled release of U.S. petroleum supply crude data, which has shown five weeks of falling inventories of distillate fuel, which includes heating oil. Analysts said Tuesday's late-day oil-price surge was also the result of a rally in natural gas futures.
Natural gas for November delivery surged 44 cents to $8.33 per 1,000 cubic feet. Natural gas futures are now about 84 percent higher than a year ago, even though analysts agree that supplies of this mostly-domestic fuel are ample.
"The buying is feeding on itself," said John Kilduff, senior analyst at Fimat USA in New York.
While crude futures prices are more than 80 percent higher than a year ago, they would need to reach $80 per barrel in order to surpass the all-time peak, in inflation-adjusted terms, set in February 1981.
Even if that record is not breached, Chuck Hackett, a broker at Access Futures & Options Trading of Woodlake, Calif., believes the market is likely to make a significant advance before retreating beneath the $50-a-barrel level. He described a "chain reaction that gets started, where fear and greed have a climax."
Crude oil price increases in the past month have primarily been due to the slow pace of recovery in the Gulf of Mexico, where Hurricane Ivan (search) damaged rigs and pipelines from Louisiana to Texas and forced many to close from mid-September. More than 25 million barrels of production have been lost since Ivan hit, while 103.2 billion cubic feet of natural gas output was lost.
About 426,000 barrels of crude and 1.5 billion cubic feet of natural gas remain shut in daily in the Gulf of Mexico, the U.S. federal Minerals Management Service (search) said on its Web site.
Unrest in key producers Russia, Nigeria, Iraq, Saudi Arabia and Venezuela have also fueled the rise in crude prices in recent months, which is underlined by limited excess capacity. It hovers about 1 percent above the world's daily consumption of 82.4 million barrels per day, leaving little wiggle room if there is a production outage.
Prices eased Monday, and much of Tuesday, after Oslo ordered striking oil workers back on the job, and the Norwegian Shipowners Association withdrew its threat to lock out more oil and gas rig workers. Norway has average production of about 3.2 million barrels a day, behind only Saudi Arabia and Russia.
In Nigeria, the world's seventh largest exporter, the main labor union met to decide whether to renew a general strike to reverse a fuel hike that could extend to its oil union.
Speaking during a break in the meeting, Adams Oshiomhole, president of the Nigeria Labor Congress, said the "if, when and how" of any possible strike action would be announced at a press conference in Abuja on Wednesday.
The strike earlier this month crippled business throughout Africa's largest oil exporter and threatened to put a halt to supply flow from the Niger Delta oil fields — the fifth largest source of U.S. crude.