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Oil Hits Record High As Hurricane Drives Up Gas Prices

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By JOHN WILEN, The Associated Press

Published: September 14, 2007

NEW YORK - Oil prices finished above $80 a barrel for the first time Thursday, and prices on the gasoline futures market for October rose as refiners reported production problems after Hurricane Humberto hit Texas.

Oil first traded over $80 a barrel Wednesday after the Energy Department reported declines in crude and gasoline inventories and a drop in refinery activity, but they ended the day below that psychologically important mark.

On Thursday, Humberto added to the supply concerns by cutting power to several refineries in the Port Arthur, Texas, area. Another tropical system gaining strength in the Atlantic also supported prices.

Light sweet crude for delivery in October finished at a record $80.09, up 18 cents on the New York Mercantile Exchange and above the previous record close of $79.91 set a day earlier. By contrast, October's Brent crude in London trading fell 28 cents to settle at $77.40 a barrel on the ICE futures exchange.

James Cordier, president of Liberty Trading Group in Tampa, noted that oil prices often peak in September, with lower demand in the fall. Also, beginning Saturday, refiners will be able to sell cheaper winter-grade gasoline.

'Gasoline just really has a difficult time staying high this time of year,' Cordier said. 'We're really wondering where demand will come from to support $80 crude oil.'

Still, there could be a short-term effect on gasoline prices. The outages at the Texas refineries helped boost October's gasoline futures by 3.04 cents, settling at $2.0464 a gallon on Thursday.

Motorists in the Tampa Bay area are paying about 5 cents more for a gallon of gasoline than they were a month ago, according to AAA's Daily Fuel Gauge Report. Retailers in the Bay area are charging, on average, $2.73 for a gallon of regular-grade gas, up from $2.68 this time last month, AAA said. A year ago, the same grade of gas was being sold to Bay are motorists for $2.59 a gallon.

Despite Thursday's gains in some crude oil prices, oil is still well below inflation-adjusted highs hit in early 1980. Depending on the adjustment, a $38 barrel of oil in 1980 would be worth $96 to $101 or more today.

In addition to closing at a record high in New York trading, the October's oil contract also set an intraday record of $80.20 a barrel on Thursday, 2 cents above the previous trading high set Wednesday.

The shuttered refineries included Valero Energy Corp.'s 325,000 barrel-per-day facility, Total SA's 180,000 barrel-per-day plant and Motiva Enterprises LLC's refinery, which can process 285,000 barrels of oil a day.

ExxonMobil Corp. said its 350,000 barrel-per-day Beaumont, Texas, refinery experienced a minor production outage but remained up and running.

Humberto lost strength Thursday and was downgraded to a tropical storm. Traders appear more concerned about the Atlantic storm, which the National Hurricane Center is calling Tropical Depression Eight. The storm's course remains unclear, but energy investors get worried when a tropical storm or hurricane threatens key oil and gas infrastructure in the Gulf of Mexico.

Oil's run-up has come despite the Organization of Petroleum Exporting Countries' decision on Tuesday to boost output by 500,000 barrels, a move driven in part by concerns that high oil prices are hurting the global economy. Many analysts are perplexed by the high prices, arguing that they have been driven by a flood of speculative buying. Many think demand does not support such high prices.

Analysts say much of the recent advance in crude prices has come from buying by large investment funds. The low dollar, which encourages buying by foreign investors, also has played a role.

'Most large financial institutions have gone long on crude, and each new high tested equates to substantial profits,' wrote Simon Wardell, an analyst at Global Insight in London, in a research note.

Such jumps in speculative buying often carry their own seeds of destruction, said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Ill.

'At some point, a saturation level will be achieved as was the case at the end of July when the net long fund position peaked,' he wrote.

After oil hit then-record trading prices above $78 a barrel on Aug. 1, futures dropped to the $69 level in a few weeks.

Tribune reporter Russell Ray contributed to this report.

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