Oil prices climbed on Tuesday on persistent fears that the heating oil supply would run short this winter when demand is expected to peak.
Ongoing concerns about United States stock levels keep overall sentiment in the market bullish, said Julian Lee, an energy analyst with the London-based Centre for Global Energy Studies.
”I don’t think one can rule out a spike to $65 a barrel, but we are looking at price levels in the upper $50s throughout July,” Lee said.
Light sweet crude for August delivery on the New York Mercantile Exchange rose 80 cents to $59,55 per barrel, following the three-day Independence Day holiday weekend in the US. On Friday, the contract had gained more than $2 a barrel to close at $58,75.
Heating oil rose 2,5 US cents to $1,7359 a gallon (3,8 litres), while gasoline was up more than two US cents to $1,6705.
On London’s International Petroleum Exchange, August Brent futures gained 34 cents to $58,28 a barrel. The contract was up more than $3 from its June 30 level of $55,04.
Prices continued to be supported by concerns that North America’s ageing refineries will have to stretch production levels to the limit as they ramp up production of distillates, which include jet fuel and heating oil, ahead of winter.
The tightness in refinery capacity, coupled with strong demand, leaves little margin for refinery glitches to occur.
”Heating oil may have rallied because of strong global diesel demand,” said New York-based Energyintel analyst George Orwel. He said heating oil’s 17-cent climb over the past four weeks was ”fuelled by diesel demand and fears that US refiners won’t have time to make enough heating oil for next winter”.
With global demand showing no signs of abating, except for a modest slow in demand growth in China, prices are unlikely to drop significantly this year, Lee said.
Meanwhile, US affairs in the Middle East have propped up concerns of supply disruptions in the oil-rich Gulf.
New Iranian president Mahmoud Ahmadinejad promised he will boost the transparency of his nation’s oil deals and pursue a nuclear energy programme.
Washington has been pressuring the Europeans, involved in tricky nuclear negotiations with Tehran, to make clear to Ahmadinejad that a nuclear-armed Iran will not be tolerated.
Iran rejects US claims that its nuclear programme is for building weapons, insisting that it is pursuing nuclear technology to generate power.
Iran also accused the US and Israel of a smear campaign against Ahmadinejad, who has been accused of taking American hostages in 1979 when radical students seized the US embassy in Tehran.
”Continued tensions with Iran seem inevitable. Ominously for tight oil markets, supplies are less secure and flowing less freely as a result,” said Energyintel analyst Peter Kemp in a research note.
”The US is clearly uncomfortable with the results of presidential elections in Iran, and although this does not act as an immediate price trigger, ongoing market concerns support bullish sentiment,” Lee said.
Despite markets being amply supplied, oil prices have remained persistently high in the past year, with the price of crude oil futures about 60% above year-ago levels. — Sapa-AP
Associated Press writer Gillian Wong in Singapore contributed to this report