Oil prices zoomed higher yesterday, touching a new high of $65 a barrel, with buyers focused on refinery snags, shrinking U.S. inventories of gasoline and motorists' growing thirst for fuel despite record-high costs.
The latest rally - crude futures have risen 14 percent in three weeks - highlights just how nervous the market has become to output threats. It doesn't seem to matter that the country's fuel inventory is enough to offset routine supply disruptions, analysts said.
The heightened sensitivity comes amid strong demand in the United States and China, the world's top consuming nations, where high prices have tempered rising fuel consumption only slightly.
"People talked about $60 crude slowing economies around the world. But here in the U.S., [Federal Reserve Chairman] Alan Greenspan is telling us the economy is doing great and getting stronger," said James Cordier, president of Liberty Trading Group in Tampa, Fla. "It bodes well for crude testing the $70 range."
Even so, Cordier said he has been stunned by the recent increase in oil and gasoline prices and the apparent lack of any response from motorists. Gasoline prices averaged $2.37 a gallon nationwide last week, up 49 cents for the comparable week last year. Demand picked up 1.4 percent from a year ago, according to the Energy Department.
Cordier said prices at the pump may continue climbing "until consumers are crying uncle, which they're not."
Light sweet crude for September delivery climbed as high as $65 a barrel on the New York Mercantile Exchange. The contract settled $1.83 higher at $64.90 a barrel, the highest closing price since NYMEX trading began in 1983.
In other NYMEX trading, gasoline futures rose 7.39 cents to $1.8963 a gallon, while heating oil rose 6.22 cents to $1.8388 a gallon.
Natural gas futures also surged, rising 42 cents to close at $9.071 per 1,000 cubic feet. Traders attributed the increase in part to extremely strong demand from power plants.
While oil prices are about 40 percent higher than a year ago, they would need to surpass $90 a barrel to exceed the inflation-adjusted peak set in 1980. That - and the fact that the U.S. economy burns fuel much more efficiently than it did 25 years ago - helps explain why the country's financial engine is still going strong, analysts said.
Energy markets have been extremely jumpy about a spate of refinery outages in recent weeks. Some traders said the recent U.S refinery troubles - the latest reported yesterday by BP PLC - is evidence that the industry and its aging infrastructure are having difficulty maintaining output at high levels.
But analysts and industry officials said such snags are not out of the ordinary for this time of year, when refineries run hard to meet peak gasoline demand.