Markets hit by further oil price volatility

FURTHER oil price volatility hit the markets yesterday following the blast that killed 14 people in BP’s west Texas refinery.

US light crude rose 61 cents to $54.38 a barrel, after falling more than $3.50, or 6% in the previous two sessions. Brent crude oil futures rose 75 cents to $53.79 a barrel.

Prices rose following Wednesday's blast at a petrol unit in BP's Texas City refinery the third-largest in the United States.

Further oil price uncertainty is on the cards as analysts fear the sector is at full refining capacity. When the driving season in the US kicks in as we move to the summer, experts warn of further price pressure.

Oil forecasts at the start of this year suggested an average price of $45 a barrel would be the average for the year.

Oil has risen about 25% this year as dollar weakness encouraged funds to switch money out of treasury markets and into commodities.

Worries over inflation have also emerged and the US government said yesterday that a big jump in energy costs pushed consumer prices up 0.4% in February.

Treasury Secretary John Snow was unhappy with current oil prices but they would not derail the US economy, he said.

"They're not of the sort that are going to knock us out of the recovery we are in now, but they are certainly unwelcome," he said. Oil prices have soared more than $10 since the start of the year and is up over 45% from a year ago.

With galloping demand from China and the US stretching global output and refining capacity, price pressure will remain a feature of the oil markets for the year.

Despite yesterday's increase, the Organisation of Petroleum Exporting Countries (OPEC) looked likely to put a decision on a second 500,000-bpd (barrels per day) supply increase on the back-burner after prices fell below the group's $55 threshold.

OPEC president Sheikh Ahmad al-Fahd al-Sabah said the time had not come to raise output.

However, he will continue to consult with members one week after an initial 500,000-bpd output increase failed to curb prices to any real extent.

Experts fear a second increase may do little to bring down prices and fear higher production will leave the cartel little spare capacity to deal with unexpected supply difficulties. At home, the price of petrol and domestic fuel is projected to rise as the year progresses.

The average price of a litre of petrol is set to rise above 1 a litre as demand for fuel in the US surges during the summer.

In real terms, prices are still off the record highs reached in 1980, when the price of oil hit $39.50. The equivalent price today would be $90pb, when inflation is taken into account.