27 May 2007 - 11:00
  • News Code: 105651

World oil prices firmed on Friday on the back of new refinery outages, although market anxiety could ease after the Memorial Day holiday

"The idea of an `official" summer driving season is really a myth. There is no ribbon-cutting ceremony that opens the interstates. We get all hot and sweaty over the idea the driving season is here when it"s not really. It"s a little further beyond the horizon than pop culture has us believe."

 

Tim Evans, energy analyst at Citigroup Global Markets

 

Prices for crude oil and gasoline rose on Friday on supply concerns ahead of the Memorial Day weekend, the start of the US summer driving season. Strikes and violence in Nigeria also propped up the oil market.

 

Gasoline futures rose US$0.0468 to settle at US$2.407 a gallon (US$0.63586 per liter) on Friday on the New York Mercantile Exchange. Light, sweet crude for July delivery followed to close at US$65.20 a barrel, up US$1.02.

 

The average retail price inched back from its record high of US$3.227 on Thursday to US$3.225 a gallon (US$0.85 a liter), AAA said, compared with US$2.862 a gallon a year ago and US$2.109 a gallon in 2005.

 

A spate of new refinery outages this week threatens to boost future and retail prices, with retail nearing the inflation-adjusted peak of US$3.29 a gallon reached in March 1981 according to the US Energy Department.

 

"The feeding frenzy" before Memorial Day tomorrow has begun in the futures market, said Tim Evans, an energy analyst at Citigroup Global Markets, but he expects trader anxiety to ease after the holiday.

 

"The idea of an `official" summer driving season is really a myth. There is no ribbon-cutting ceremony that opens the interstates," Evans said. "We get all hot and sweaty over the idea the driving season is here when it"s not really. It"s a little further beyond the horizon than pop culture has us believe."

 

Historically, Evans said, the strongest demand for gasoline doesn"t start until late June, before the July 4 holiday, which should allow inventories to build some more and reduce pressure on futures, and eventually, retail prices.

 

Tom Kloza, an oil analyst at Oil Price Information Service, said that prices in the Midwest and Rockies will probably moderate the most, since those regions suffered the worst increases in the last weeks due to their proximity to refinery disruptions.

 

However, reports of two new refinery outages this week at Valero Energy Corp"s McKee refinery in Sunray, Texas, and ConocoPhillips" Alliance oil refinery in Belle Chasse, Louisiana, kept traders concerned and a floor under prices.

 

Meanwhile, conflict in Nigeria and Iran continue to support crude oil prices.

 

"The increasing violence in Nigeria is getting everybody very nervous," said Phil Flynn, an energy analyst at Alaron Trading Corp. in Chicago. "People just don"t want to be short over the weekend. There"s too many variables. It"s a dangerous position to be in."

 

Oil unions began a strike on Thursday at Nigeria"s state-owned oil company and threatened to target exports in hopes of reversing the sale of government refineries. The state oil company holds the majority stake in joint ventures with international oil companies that account for more than 90 percent of the country"s oil exports.

 

In southern Bayels, gunmen kidnapped six oil workers, the latest in a run of more than 100 seizures of foreign workers this year in the oil-producing Niger Delta.

 

Iran has expanded its uranium enrichment program, and the US Navy is holding unannounced exercises off Iran"s coast. Traders and analysts fear any conflict between the two could result in the closure of the Strait of Hormuz, through which tankers ship carry about 17 million barrels of crude oil a day, according to the US Energy Information Administration.

 

Brent crude for July had initially spiked above US$71 on Thursday after the Iran news. But on Friday, it ended down US$0.037 at US$70.69 on the ICE Futures exchange in London, giving back some of the "substantial geopolitical risk premium" traders have built into the price, Evans said.

 

In other NYMEX trading, heating oil futures added US$0.01 to settle at US$1.9391 a gallon, while natural gas prices lost US$0.041 to US$7.640 per 1,000 cubic feet (US$0.2698 per cubic meter).

 

PIN/AP

News Code 105651

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