Oil Prices Climb as Traders Play It Safe Over Weekend

Oil prices rose for the second straight day Friday as traders, uncertain over what may happen next in the Persian Gulf, bought up supplies in advance of the Labor Day weekend.

Crude oil for October delivery closed up 55 cents at $27.32 a barrel after rising 85 cents Thursday on the New York Mercantile Exchange.

Traders said buying picked up as the stalemate in the Middle East dragged on. Early waves of selling this week had been inspired by hopes for a quick negotiated settlement to the crisis, which has threatened the world’s oil supplies.

“The threat of war has eased but it’s still lurking out there in case diplomatic overtures fail,” one oil trader said.

Robert Jonke with Cargill Investor Services Inc. estimated that up to 60% of the current strength in oil markets is directly related to fears of military action in the Persian Gulf.

“Tensions are still there, nervousness is still there. People expect some type of conclusion to this,” Jonke said.

Friday’s strongest move was in unleaded regular gasoline, which rose 7.25 cents to 96.32 cents per gallon for September contracts in their last day of trading on the New York Merc.

Home heating oil was up 0.35 cent to 75.89 cents per gallon, also on the last day of trading for September delivery.

Prices have seesawed this week as traders alternately looked to the Persian Gulf and to Vienna, where the Organization of Petroleum Exporting Countries met.

Early in the week, oil prices fell as tensions seemed to cool in the Middle East. After OPEC’s decision Wednesday to boost oil production, prices fell sharply but have since crept upward.

OPEC allowed nations such as Saudi Arabia, Venezuela and the United Arab Emirates to pump more oil to replace the 4 million barrels daily lost because of the U.N. embargo on Iraq and Kuwait.

Although the increases had been widely anticipated, even without an OPEC agreement, prices tumbled.

But once the selling was out of the way traders again focused on tensions in the gulf, and prices began to climb again.

“Four weeks after Saddam Hussein’s troops invaded Kuwait, the future developments in the region are as uncertain as ever,” said a report from oil brokers E .D. & F. Man International.

In London, the October Brent crude, a world benchmark, was quoted at $26.50 a barrel, up 55 cents from Thursday’s New York close.

Trading was thin on both the New York and London oil markets.

Analysts said some traders were keeping prices up as they bought futures Friday to avoid getting caught short over the long weekend. New York financial markets are closed Monday.

Meanwhile, analysts are predicting a tight market for gasoline and heating oil next month due to supply disruptions in the Middle East and strong military demand.

“There is a shortage of refining capacity in the world, and the situation in the Middle East has really affected those refineries,” said Bernard Picchi, an analyst with Salomon Bros. A daily refining capacity of 1.3 million barrels has been taken off the world market because of the embargo of Iraq and Kuwait, he said.

“The Middle East is not just a big crude oil exporting region. It’s also a big products exporting region,” Picchi said.

“There are distinct concerns that product availability will be limited by the loss of exports from Iraq and Kuwait and a possible strike in Brazil,” said Stephen Platt, an analyst with Dean Witter Reynolds Inc. in Chicago.

Brazilian oil workers have set a strike date of Sept. 4 unless state-owned Petrobras improves its offer of an 83% wage hike.

According to the Energy Department, Brazil accounted for just under 10% of all gasoline imports to the United States, or about 50,000 barrels a day.

The lastest oil industry stock report puts U.S. gasoline inventories at 210.9 million barrels, the lowest level since July 29, 1988. And refinery utilization rates are considered to be almost at maximum levels, 92.4% of capacity.

But analysts said the United States does not suffer from a refinery capacity crunch.