World oil prices surged nearly two dollars on Friday on worries that the stormy season in the Gulf of Mexico would continue to hamper energy production and imports, delaying vital stock building ahead of the coming winter months. Fund buying ahead of the weekend and renewed concern about the fate of Russian oil firm Yukos added to bullish sentiment.
US light crude gained $1.77 to $45.65 a barrel, while London's Brent crude futures were up $1.62 at $42.37 a barrel. Hurricane Ivan's assault on the US Gulf coast appears to have caused only minor damage to oil facilities. But as Ivan abates, Tropical Storm Jeanne is following and there was widespread speculation it would disrupt some production and imports.
"We expect upside price pressure to persist," Barclays Capital said in a report. "Although (Jeanne) is expected to miss the Gulf coast, it could disrupt tankers."
Oil companies are estimated to have shut a total of nearly 5.2 million barrels of production this week as a precautionary measure against Ivan, according to the US Minerals Management Service.
A total of nearly 22.9 billion cubic feet of natural gas production was also been shut this week, while the closure of Gulf ports has prevented millions of barrels of oil imports from entering the country.
Merrill Lynch analysts said oil and natural gas stocks in coming weeks would be impacted by the closures.
"The loss of production over this period, coupled with the disruption to imports offloading in the Gulf of Mexico being the key factors," they wrote in a report.
A string of storms in the last month has reduced US crude inventories in the past month. The Energy Department said on Wednesday crude stocks had fallen last week for the seventh week in a row, at a time when inventories should start to build.
The temporary halt in refinery operations is also likely to have curtailed vital production of winter heating fuels, stocks of which are below their five-year average.
Crude inventories, now at a six-month low, are likely to have fallen again this week in Ivan's wake, analysts expect.
The Opec cartel which has been pumping at full throttle in recent months, said its huge supplies would help global oil stockpiles to grow by over one million bpd in 2004.
But analysts say a refining capacity shortfall could see heating fuel prices skyrocket if sufficient stocks are not built before the northern hemisphere winter.
"The shortage of refining capacity is a very serious bottleneck squeezing prices higher, despite crude feedstock being relatively abundant," Edward Meir of Man Energy said.
News that a Moscow court had upheld a decision to seize five refineries belonging to oil firm Yukos, added to the bullish sentiment, oil dealers said.
The company with 1.7 million bpd crude production, has been battling bankruptcy as the Russian government seeks to collect about $7 billion in back taxes.
"There is Yukos, there are the storms and there are the usual concerns," one trader said. "No one wants to go short into the weekend."