Nervous buyers spur oil record

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, analysts said, that the country has enough fuel in inventory to offset routine supply disruptions.

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 run-up 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 from last year. Demand picked up by 1.4 percent from a year ago, according to government data.

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 level since Nymex trading began in 1983.

While oil prices are about 46 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 jumpy about a spate of refinery outages in recent weeks. Some traders said the recent U.S. refinery troubles — the latest reported by BP yesterday — are evidence the industry and its aging infrastructure are having difficulty maintaining output at high levels.

But analysts and industry officials said refinery snags are not out of the ordinary for this time of year, when plants run hard to meet peak gasoline demand.

"Hiccups are an unfortunate reality of operating refineries," said Bryan Caviness, who follows the industry for Fitch Ratings in Chicago.

Data released yesterday by the U.S. Department of Energy showed that crude-oil inventories grew by 2.8 million barrels last week to 320.8 million barrels, or 10 percent above year-ago levels. The supply of distillate fuel, which includes heating oil, increased by 2.6 million barrels to 129.9 million barrels, or 6 percent above last year.

The agency data showed a 2.1 million-barrel decrease in the nation's supply of gasoline, putting inventories at 203.1 million barrels, or 4 percent below last year.

U.S. refiners operated at 95 percent of capacity last week, a slight decline from the week before.