Oil hits record over $80

NEW YORK Thu Sep 13, 2007 8:45pm BST

People work at an oil storage facility in Bangkok, Thailand September 13, 2007. REUTERS/Sukree Sukplang

People work at an oil storage facility in Bangkok, Thailand September 13, 2007.

Credit: Reuters/Sukree Sukplang

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NEW YORK (Reuters) - Oil hit an all-time high over $80 a barrel on Thursday after Hurricane Humberto forced the closure of some U.S. Gulf refiners, stoking supply concerns amid falling inventories in the world's top consumer.

U.S. crude settled up 18 cents at a record high $80.09 a barrel, after hitting an intraday record of $80.20 earlier. London Brent crude settled 28 cents lower at $77.40 a barrel.

U.S. gasoline futures helped lead prices higher after Hurricane Humberto shut oil shipping channels and three refineries as it slammed onshore in Texas, before being downgraded to a tropical storm.

Total, Conoco and Shell shut the refineries in Port Arthur, Texas, after a power failure cut electricity to the plants.

"Strength today came from gasoline, after some refineries were shut because of storm-related problems," said Eric Wittenauer, analyst at A.G. Edwards in St. Louis, Missouri.

Though oil prices have quadrupled since 2002, when adjusted for inflation the price is below the $90-a-barrel peaks of the Iranian Revolution in 1979 and the start of the Iran-Iraq War the following year.

Strong fundamentals and the recent price surge has lured more investors into oil markets, their enthusiasm growing thanks to a market structure that encourages favourable returns.

"Modest demand growth combined with no significant supply increases has caused oil inventories to decline sharply, creating backwardation in the oil forward curve, which is a very bullish signal," said Jeffrey Currie of Goldman Sachs.

In a backwardated market, oil for delivery in the near term is more expensive than for later shipment. Investors make money by selling the more costly prompt oil futures contract and buying cheaper crude contracts for later delivery.

The market shifted into backwardation in part because some analysts and consumers believe OPEC will not pump enough oil to satisfy demand for fuel this winter.

To try to soothe consumers, OPEC agreed a small supply increase on Tuesday. But analysts said OPEC's deal to raise output by 500,000 barrels per day (bpd) from November 1 was not enough to reverse a rally that has lifted prices by 31 percent this year.

Market participants were also taking stock of crude inventories in top consumer the United States that fell 7.1 million barrels last week to the lowest level in eight months.

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