NEW YORK – Oil prices hit a record $61 a barrel Wednesday as a tropical storm shut refinery units in Louisiana and an approaching storm compounded worries over refiners' ability to bolster pre-winter fuel supplies.
U.S. crude rose as high as $61.35 per barrel on the New York Mercantile Exchange (search), the highest price for oil futures since they began trading in the early 1980s. It later settled $1.69 higher at $61.28 per barrel. London Brent rose $1.57 to $59.86 a barrel.
Tropical Storm Cindy slowed into a depression Wednesday after hitting land, but not before knocking down transmission lines in Louisiana, briefly shutting refinery units and leading to minor production cuts at five refineries in the state.
Oil companies also eyed Tropical Storm Dennis (search) in the Caribbean which the National Hurricane Center said could strengthen into a hurricane later in the day and hit the Gulf of Mexico by the weekend.
"The hurricane threat has certainly raised people's fears of refiners struggling to produce enough products, particularly at a time when demand for gasoline is high," said Daniel Hynes, resource analyst at ANZ Institutional Banking.
Cindy also caused the closure of a small volume of production in the Gulf of Mexico, home to a quarter of U.S. oil and gas output.
The U.S. federal Minerals Management Service (search) said Tuesday more than 3 percent of daily Gulf oil and gas production had been shut as energy companies evacuated some workers from platforms.
Hedge fund investors are betting peak winter demand will stretch supplies, particularly of heating oil and other high-demand distillate fuels.
"As oil grows ever more expensive, it seems that only a visible weakening of the global economy, with tangible evidence that demand for oil products is slowing, would convince market participants to sell," said Morgan Stanley in a research note.
NHC said it was the earliest date on record for four named tropical storms to have formed in the Atlantic basin, underscoring predictions that the 2005 hurricane season could be unusually active.
Oil markets may turn even more bullish if a forecast on weekly U.S. crude stocks is proved correct. Stocks are expected to have fallen by 1.1 million barrels, according to an expanded Reuters survey on Wednesday.
The Energy Information Administration (search) is slated to release on Thursday its report for the week to July 1.
The Organization of Petroleum Exporting Countries (search) last week suspended talk of increasing production by a further 500,000 bpd on top of an increase that came into effect this month.
Despite the move back to above $60 a barrel, Iran said the group should wait before considering further action.
"In this situation, before anything, we should wait for the response of the market after the new increase that we had from the first of July," said Iranian Oil Minister Bijan Zanganeh.
All in OPEC bar Saudi Arabia are already pumping at full capacity.
While U.S. demand is running strong, the world's second-biggest oil consumer, China, has been showing signs of weaker-than-expected growth this year, data has shown.
Major Chinese refiners, who have been exporting unusually large volumes of gasoline and diesel this year, have cut back operating rates in July as soaring crude costs turn their margins negative for low, state-set domestic retail sales.