Oil surges above $64 on refinery crunch

Shutdowns in the United States keep worries over summer supplies bubbling; gasoline prices soar.

NEW YORK (CNNMoney.com) -- Oil jumped more than $2 Thursday, rising above $64 a barrel, and gasoline prices spiked as U.S. refinery closures cut into gas supplies just ahead of peak summer demand.

U.S. crude for June delivery settled up $2.31 to $64.86 a barrel on the New York Mercantile Exchange.

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London Brent crude, currently seen as more representative of oil prices paid by refiners, gained $1.35 to $69.32 a barrel, close to the 2007 high of $69.59 a barrel struck in mid-April.

Refinery shutdowns in the United States have kept concerns bubbling over a summer supply crunch.

On Wednesday the refiner Valero (Charts, Fortune 500) said boiler problems and steam system issues hit a plant in Houston, shutting in about 100,000 barrels a day of gasoline and distillates.

Front-month reformulated gasoline futures jumped nearly 7 cents a gallon on NYMEX to nearly $2.41.

But the futures price spike appears tame compared to spot prices, according Tom Kloza, chief oil analyst at the Oil Price Information Service.

Kloza said spot prices, which more accurately reflect what service station owners have to pay for gas, have surged more than 20 cents a gallon in the past 72 hours, notably in locations serving the heavily populated Midwest and Northeast.

"They are absolutely going ballistic," said Kloza, pointing to short-term covering by traders and a belief by some that refinery production will never be able to ramp up to levels seen in years past as reasons for the jump. "It's a lay up, for the next few days we're going considerably higher."

Investors are drawing little comfort from a surge of gasoline imports.

Gasoline stocks rose 1.7 million barrels last week after imports increased to 1.5 million barrels per day (bpd) - the fifth-highest level on record.

"There's still a relatively low rate of refinery runs - the current tightness in gasoline is unlikely to ease in the short term," Makoto Takeda, an analyst at Bansei Securities, told Reuters.

Despite pump prices Thursday of $3.114 a gallon, another record high, there is no letup in robust demand in the world's top consuming nation.

More motorists than a year ago are expected to hit the roads over Memorial Day weekend, the traditional start to the driving season, according to a report by the motorist organization AAA.

"For a majority of drivers, the thought of driving less is simply out of the question," Edward Meir of Man Financial Energy Group told Reuters.

"We don't think we have seen the last of the current gasoline spiral, and could very well see one more significant spike higher during the new few weeks."

International outlook

U.S. inventory figures on Wednesday had initially added to pressure on prices, after the end to an occupation of an oil hub by Nigerian villagers that forced operator Royal Dutch Shell to cut output by 170,000 bpd.

Militant attacks have shut down nearly 900,000 bpd, or 30 percent of supply capacity, from Africa's biggest oil producer - depriving refiners of crude prized for its gasoline content.

The Nigerian disruptions, together with worries over Iran's dispute with the West and supply cuts by OPEC producers, have pushed crude well above a January low near $50.

Consumer nations have called on OPEC to open the taps, but the group that supplies a third of the world's oil says it sees no need to act. Its next scheduled meeting is in September.

"OPEC is incredibly relaxed at the current state of the market," Barclays Capital told Reuters. "Without that increase, we expect the market to overheat in the second half of the year."

Abdullah al-Badri, the group's secretary-general, said OPEC is content with prices in their current range.

"I don't want to see a low price and I don't want to see a high price," he told the news agency Thursday.

--from staff and wire reports Top of page