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Oil Prices Shoot Above $45 Per Barrel

Thu Jan 6, 5:01 PM ET

By BRAD FOSS, AP Business Writer

Oil prices shot up 5 percent Thursday and closed above $45 a barrel after an early spurt of buying created momentum that forced investors anticipating lower prices to cover their bets.

Analysts said there was no single spark that got the rally going. Instead, they suggested that the move higher merely signals the persistent skittishness in the market, stemming from strong demand, tight supplies and fears about instability in Iraq, Saudi Arabia, Nigeria and other key producing nations.

"Not a lot has changed from when we were $10 a barrel higher than where we are now," said Tom Bentz, a broker at BNP Paribas Commodity Futures in New York.

"And heating oil inventories are still on the low side," he added. "At some point, the weather is going to get colder."

Light sweet crude for February delivery soared $2.17 to settle at $45.56 a barrel on the New York Mercantile Exchange. February heating oil futures surged 6.29 cents to $1.2813 per gallon, while February gasoline ended 5.19 cents higher at $1.2229 a gallon.

In London, Brent crude for February delivery rose $2.34 to $42.85 per barrel on the International Petroleum Exchange.

"We have a great deal of investment funds that are trading crude oil right now, a lot of end users that are hedging in the market and producers in the Far East that are trading in crude," said James Cordier, president of Liberty Trading Group in St. Petersburg, Fla. "We get to where we're going a lot faster than we used to."

Cordier said there was considerable resistance for Nymex crude at the $44 a barrel level, but that once that was surpassed, prices moved higher very fast.

On Wednesday, oil prices fell after a U.S. government report showed larger-than-expected increases in winter fuel supplies, sending heating oil prices lower too.

The U.S. Energy Department's statistical arm reported Wednesday that supplies of distillate fuel, which include heating oil and diesel, grew by 2 million barrels last week to 121.1 million barrels. The increase was much higher than expected, though it still leaves inventories 11 percent below year ago levels, according to the Energy Information Administration.

High-sulfur distillates used for heating oil increased by 1.2 million barrels to 50.1 million barrels, about 9 percent below year ago levels.

While oil prices are well below the late October high above $55 a barrel, traders remain wary about tight heating oil supplies in the United States and about possible supply disruptions in Iraq and terrorist activity in Saudi Arabia, the world's top supplier of crude oil.

Markets were rattled throughout 2004 by stronger-than-expected demand and persistent supply fears and unrest in key producers Saudi Arabia, Russia, Venezuela, Nigeria and Iraq.

U.S. and Norwegian producers have also been working to restore production caused by leaks and storms.

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Associated Press Writer Christopher Bodeen in Singapore contributed to this report.