Oil prices up again

After closing at a record $63.94 yesterday, the cost of a barrel of US light crude rose even higher to touch $64.27 in overnight trading.

The latest surge comes as fears of instability in the Middle East grow and supply is disrupted by unplanned shutdowns of refineries in the United States.

Cathy Arnfield, an energy analyst at Credit Suisse First Boston, said demand for oil was not responding to the high prices and this was particularly visible in the US where there were record sales of sports utility vehicles last month.

“Oil prices will stay high for the rest of this year and likely into next,” she said.

Adjusted for inflation, the highest price that crude has traded at is $94.77 in April 1980.

Prices are 43% higher than a year ago and have risen in the wake of the death of King Fahd of Saudi Arabia, which increased nervousness about potential instability and whether supplies from the world’s biggest producer of oil could be guaranteed.

Threats were brought into focus yesterday by the decision of the United States to close its embassy in Saudi Arabia, which accounts for one in every seven barrels of oil consumed around the world.

British officials in the desert kingdom warned that the threat of terror attacks is currently “high” – a view shared by Australia which urged its citizens not to travel to Saudi Arabia, saying they had received “credible reports” that terrorists were planning attacks against Western targets.

Supply fears have been compounded by a string of fires and hurricane damage at US refineries. ExxonMobil and BP have both shut down refineries in the past fortnight, putting pressure on inventories.

Any threats to oil supply in key exporting countries tends to spark buying sprees because of fears that prices could soar even higher in the near term, analysts said.

Meanwhile, heightened tensions over the restarting of Iran’s nuclear programme were also lifting oil prices.

The second-largest oil producer in the Middle East said yesterday that it had restarted some uranium conversion activities. This prompted the UK, France and Germany to call an emergency meeting of the UN nuclear agency for today to decide whether to seek sanctions against Tehran.

Iran insists its nuclear programme is peaceful, but the US accuses its leaders of covertly trying to build an atomic weapon.