Oil price closes over $40, a 14-year high


NEW YORK - The price of crude oil roared past $40 a barrel in New York yesterday, to the highest finish since October 1990, as supply fears returned, stirred by strong demand and high Middle East tension.

New York's benchmark contract, light sweet crude for delivery in June, rose to $40.15 before ending at $40.06 a barrel, up $1.13.

Brent North Sea crude for June delivery gained $1.39 to $37.36 dollars a barrel.

On Friday, the benchmark light, sweet crude futures price briefly hit $40 a barrel before settling back to close at $39.93 in New York. The price fell $1 Monday to $38.93 a barrel.

But prices began to rally early yesterday in Europe as the markets dismissed calls by Saudi Arabia, the biggest oil exporter, for a boost in OPEC's output quotas, analysts said.

Saudi Arabia's oil minister, Ali al-Naimi, called Monday for an increase in OPEC's production quota of at least 1.5 million barrels a day. Initially, prices rose after his comments.

"Basically, the market has ignored the comments from Saudi Arabia," said Fadel Gheit, an oil analyst at Fahnestock and Co..

Gheit said supplies are tight and demand strong, especially for gasoline from China, Japan, Europe and the United States.

But Fimat USA market analyst Mike Fitzpatrick said the Saudi promise was considered to be empty because members of the Organization of the Petroleum Exporting Countries already exceeded their quota by that amount.

"People look at the Saudi promise for OPEC to put out 1.5 million [additional] barrels per day, and that is exactly the amount that they are cheating by," he said. "We are where we were last Friday."

Worries about terrorist attacks have risen since gunmen attacked a Saudi oil facility at Yanbu port May 1, killing five staff of the Swiss engineering group ABB and a Saudi National Guard soldier. Saudi Arabia is by far the largest crude oil exporter.

Fitzpatrick said the "security premium" accounted for $6 to $8 dollars of the price of a barrel of crude.

"The oil infrastructure is still very vulnerable," Fitzpatrick said.

Bill O'Grady, at AG Edwards, said the reasons for the price increase are mainly psychological.

"There is plenty of supply," O'Grady said. "The market is not looking at inventories ... more at a future disruption in supply. The trick is, we are at a point [at which] the market feels that there are no fundamentals out there that can bring prices down."

However, some traders are worried about low U.S. gasoline inventories heading into the summer driving season when vacationers flock to the roads.

The latest weekly U.S. oil stock figures are to be published today .

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