Fears of an oil shock deepened on Friday as crude set new highs, underpinned by fresh evidence of strong Chinese demand and worries about sabotage in Iraq.
News of an explosion at the Whiting, Indiana refinery pushed US light crude to a record $46.30 a barrel on the New York Mercantile Exchange, before it eased to $46.05, up 55 cents. London Brent set a record $43.40 a barrel, trading later at $43.13, up 84 cents. Prices have hit new records in all but one of the last 11 trading sessions.
Worries about possible unrest in oil producer Venezuela during this weekend's referendum on the rule of President Hugo Chavez helped fuel Friday's gains.
"None of the fears about supply have gone away and demand growth shows no sign of slowing," said independent London oil analyst Geoff Pyne. "That makes it a difficult market to sell."
"You've got Iraq along with the referendum in Venezuela on Sunday," said Nauman Barakat of brokers Refco in New York. "It's one problem after the other. I don't see anything bearish in this market."
Oil is up more than $10 a barrel since the start of the year. In real terms, adjusted for inflation, prices are still far below 1980's peak of $80 a barrel, following the Iranian revolution. But prices now are near those of 1974, the first oil shock, when crude averaged an inflation-adjusted $43 during the Arab oil embargo.
While leading economies so far have managed to cope with higher oil prices, signs are emerging that rising energy costs are starting to bite.
The chief economist of Germany's central bank said oil was dampening Germany's economic outlook and persistently high prices could force a downgrade in the bank's upbeat forecasts for growth and inflation.
Bundesbank chief economist Hermann Remsperger told Welt am Sonntag newspaper: "Further increases in oil prices wouldn't only dampen global growth but domestic purchasing power too."
A blast Friday at the 420,000-barrel-a-day BP Whiting refinery, the third biggest in the United States, underlined the fragility of a US refinery system that is struggling to meet national consumption growth rates of 3.5 percent. US refinery bottlenecks are a prime factor behind this year's oil price surge.
China on Friday said crude imports into the world's second biggest consumer held strong in July at growth rate of 40 percent over July 2003. China's crude imports averaged 2.49 million barrels a day in the first seven months of 2004, also up 40 percent compared to the matching period last year, the official Xinhua news agency said.
The import figures suggest China's demand for oil has not been dented yet by Beijing's efforts to rein in its strongly growing economy, or by high prices.
Chinese officials say high refinery runs to meet domestic demand by state oil company Sinopec continue to attract heavy crude imports.
"Sinopec had planned higher second-half refinery production versus the first half, which means high crude imports will stay," said an official with China's top oil refinery Zhenhai Refining & Chemical Co Ltd.
Opec is already pumping at 25-year-high of 30 million barrels a day in a bid to replenish world oil inventories before the winter demand period of the fourth quarter. Deborah White, senior economist at SG Commodities in Paris said demand for Opec crude would reach 30.3 million in the fourth quarter, leaving no room for supply disruptions in Iraq.
Iraqi oil exports flowed normally on Friday from the country's southern fields to offshore terminals after pumping resumed through a main pipeline sabotaged on Monday, an official from Iraq's South Oil Company said.
But traders worry that Iraqi rebels loyal to Shia cleric Moqtada al-Sadr will target oil infrastructure after US forces stormed the holy city Najaf to quell a week-long uprising by Sadr supporters.
There were also concerns that Sunday's referendum in Venezuela may lead to violence if President Hugo Chavez is defeated, and put the country's oil shipments at risk.
"Anything less than a clear answer will likely perpetuate the country's political turmoil," Washington consultants PFC Energy said in a report.