Oil sets new record on lengthy US supply outage

Oil prices hit a new record near $51 a barrel yesterday as a prolonged US production outage following Hurricane Ivan attracted fresh speculative buying.

US light crude set a high of $50.99 a barrel just after the open of pit trade yesterday, but by 1630 GMT had eased to $50.55.

London Brent moved to a record $47.15 a barrel, later falling back to $46.70.

"Fair value is probably not too far from these levels," said Emanuele Ravano, head of portfolio management at PIMCO. "If you look at the longer term factors there is still clearly demand inelasticity and poor infrastructure."

High prices have had little effect on the fastest oil demand growth in a generation this year, while concern of potential supply disruptions as oil producers pump at full capacity has fed price gains.

Supply anxiety is building ahead of the northern hemisphere winter, when demand for heating oil surges. Inventories of crude and distillates in the world's top energy user, the US, are running as much as four per cent below last year.

"US production has been slow to recover from Hurricane Ivan and people are worried by the low level crude and distillate inventories ahead of winter," said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo. In the US Gulf of Mexico, nearly 29 per cent or about 480,000 barrels per day (bpd) of oil output remains shut three weeks after Hurricane Ivan first hit the region, the US Minerals Management Service said on Monday.

US consultancy PIRA Energy estimates at least 40 million barrels equivalent of oil and gas will be deferred by Hurricane Ivan.

PIRA said it calculates 17 million barrels of oil, four million barrels of natural gas liquids and 110 billion cubic feet of natural gas will be shut in by the hurricane.

The estimate includes an assumption about Ivan losses in the rest of October and into November.

Dealers will now look to US oil inventory data, due out on Wednesday, to gauge how comfortable oil supplies are in the weeks approaching winter.

A Reuters poll of eight analysts predicted on average a fall in distillate stocks - including heating oil, the main winter fuel in the northeast of the country - by 800,000 barrels and a drop in gasoline stocks by 600,000 barrels.

The weekly report by the Energy Information Administration was expected to show crude stocks rising in the week to October 1 by 1.1 million barrels from the week earlier.