Winter worries boost oil prices

Oil prices broke above $55 a barrel yesterday as concern lingered over thin world heating oil supplies ahead of winter.

US light crude for December settled at $55.17 a barrel, up 63 cents on the day, while Brent crude in London rose 78 cents to close at $51.56 a barrel.

US crude surged to a record $55.67 on Monday after a Norwegian shipowners' group briefly threatened to shut down the country's output to resolve a strike.

Norway is the world's third-largest oil exporter and a halt in shipments would have stretched world supply to the limit ahead of the northern hemisphere winter, when heating demand picks up.

"The system has insufficient spare capacity to be shock proof," said Mr Jeroen van der Veer, chairman of Royal Dutch/Shell.

OPEC has been pumping at near capacity since the summer to meet the biggest annual leap in demand for a generation.

Last month's Hurricane Ivan continues to curtail Gulf of Mexico production.

The outage has impeded the seasonal stockbuild of winter fuels, with US heating oil inventories lingering 12 per cent below last year's level and inventories in big consumers Germany and Japan also lagging.

Stockpiles of middle distillates, which include heating oil and jet fuel, are expected to have fallen in the US for a sixth consecutive week in government data due to be released today.

Supplies should be building to prepare for the spike in winter demand, which will depend largely on the severity of cold weather in the US northeast.

Extremely cold weather could be classed as a supply disruption that would trigger a release of emergency heating oil stocks, the head of the International Energy Agency (IEA) said yesterday.

The agency also warned that the world economy will face higher prices as more oil comes from "politically unstable" countries and production costs rise.

"The increased dependence of oil-importing regions on a small number of OPEC producers and Russia will increase those countries' market dominance and their ability to impose higher prices," the IEA said in its report.

The warning is a departure from its attempts in the recent months to calm the market.

Oil prices have stayed well above $50 for the past three weeks, prompting consuming nations to take a closer look at the potential damage to their economies. US officials have said solid growth might be slightly diminished but not derailed, while fast-growing Asian importers China and India continue to show evidence of strong demand.

The head of BP, which yesterday reported a 43 per cent rise in third-quarter profits, said oil prices would stay strong for the foreseeable future.

"Oil prices are considered to have an approximate support level of $30 per barrel for at least the medium term, with chances of spiking above this level," BP chief executive Mr John Browne said.