A broken record: Oil closes up again

August 19, 2004

NEW YORK (CNN/Money) - Oil prices blazed to the high side of $48 a barrel and set new records Thursday, while violence in the city of Najaf flared, causing supply shortage worries.

Light crude for September delivery closed at $48.70 on the New York Mercantile Exchange, up $1.43 and just below the intraday record of $48.80; crude set a settlement record Wednesday at $47.27. October Brent crude closed at $44.33 in London, up $1.30.

Live broadcasts by pan-Arab Arabiya television showed smoke billowing over the holy city of Najaf as explosions rocked the streets shortly after al-Sadr rejected a government demand to surrender.

Attacks by Iraqi rebels mortars killed five at a Najaf police station and a domestic oil pipeline in the north blown up. Mortars also hit the Green Zone compound in Baghdad housing Iraq's interim government.

"The situation in Basra is still deemed too dangerous to operate the (pipe)line, although headquarter employees returned to work today and events in Najaf are encouraging," a South Oil Company official told Reuters Thursday.

However, late Thursday Eastern Time scores of gunmen attacked the South Oil Company headquarters in the city of Basra and looted the 8-story building before setting it on fire, said a company official, who declined to be further identified.

The attack did not appear to further disrupt supplies.

Iraq's southern pipeline has been shut since a sabotage attack on Aug. 9, curbing export flows to about a million barrels daily, half normal rates.

Iraq has lost an estimated $2.7 billion in revenue since the U.S. invasion from sabotage attacks against oil export pipelines, Oil Minister Thamir al-Ghadhban told Reuters.

Shiite militiamen said they will continue to target oil infrastructure in Iraq if U.S. forces do not leave Najaf, supporting the latest price rally. Despite hopes for an end to fighting in Najaf, there is no ceasefire in effect on the ground, a senior Western official told CNN.

Iraq's interim government said radical Shiite Muslim cleric Muqtada al-Sadr must publicly or personally say he is disarming or will stand down, or Iraqi and U.S. forces will take military action against him, as fierce fighting erupted around a holy shrine in Najaf Thursday.

More demand
Evidence is mounting that China's fast-growing economy is spurring on oil demand, intensifying competition for supply with established oil consumers like the United States and Japan.

Reuters reports that China's refineries have processed 17.2 percent more crude so far this year than in 2003, citing the State Statistical Bureau. Crude imports have soared nearly 40 percent from last year.

And China plans to spend about $3.4 billion to lay 6,000 miles of oil pipelines over the next three years, more than the total pipeline built in the past three decades.

Fellow emerging economy India said its biggest refiner, State-run Indian Oil Corp. Ltd., expects the nation's crude oil imports to rise by 11 percent between 2004 and 2005, with demand rising by nearly 4 percent.

Demand in the world's largest oil-consuming nation, the U.S., has jumped 3.4 percent this year. Inventory building slowed as rising consumption absorbed extra imports.

Prices have peaked in all but one of the past 15 trading sessions and are up more than $10 a barrel, or 28 percent, since the end of June.

U.S. government data released Wednesday showed commercial crude oil supplies for the week had fallen 1.3 million barrels to 293 million barrels last week, the third straight week of declines in the nation that guzzles nearly a quarter of the world's oil.

Perceived dwindling supplies and actual increased demand have created bullish market sentiment whereby any news of supply disruption has pushed prices higher.

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