Oil prices surge nearly $2 on supply fears

Oil prices surged nearly $2 a barrel yesterday following two bombings in the capital of Saudi Arabia and after the US government reported that winter fuel supplies shrank last week.

Light crude for February delivery rose $1.87, or 4.4 percent, to settle at $43.64 per barrel on the New York Mercantile Exchange.

While down considerably from the October peak above $55 a barrel, crude futures are 33 percent more expensive than a year ago, contributing to higher prices for gasoline, heating oil, and other fuels.

Fears of supply interruptions in Saudi Arabia, Iraq, Russia, and Nigeria have underpinned higher oil prices throughout 2004, with markets especially volatile due to surprisingly strong demand and a tight global supply cushion.

Oil prices were lower yesterday morning as traders seemed comforted by forecasts calling for mild temperatures later in the week, allowing them to essentially shrug off a report about the nation's declining inventories of crude oil and distillate fuel, which includes heating oil.

But nighttime attacks launched by militants and a suicide driver in Saudi Arabia sparked an afternoon rally in oil prices. The rally was magnified by thin trading volume, analysts said, but accurately reflected the market's extreme sensitivity to instability in the nation that is the world's top producer and exporter of oil.

Earlier in the day the US Energy Department reported that the nation's inventory of distillate fuel, which includes heating oil and diesel, fell last week by 800,000 barrels to 119.1 million barrels. That leaves distillate supplies nearly 13 percent below year-ago levels.

Yesterday, heating oil futures rose 5.53 cents to $1.2774 per gallon on Nymex, where gasoline futures climbed 3.86 cents to $1.0843 per gallon and natural gas futures jumped 6.1 cents to $6.402 per 1,000 cubic feet.