Oil surges on offshore drilling report

08:57, January 12, 2011      

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Oil prices surged yesterday after a presidential panel investigating the Gulf oil spill said the oil industry and the government need to do more to reduce the chances of another large-scale disaster.

Benchmark oil for February delivery rose US$1.86, or more than 2 percent, to settle at US$91.11 a barrel on the New York Mercantile Exchange.

The panel's recommendations included increasing the liability cap for damages when companies drill offshore; increasing budgets and training for the federal agency that regulates offshore drilling and lending more weight to federal scientific opinions in decisions about drilling.

The report raised speculation that the government might slow down production in the Gulf of Mexico, which would lead to higher prices. "As it stands right now, this is a little bit of a concern in the oil patch," PFGBest analyst Phil Flynn said.

Oil prices also got a boost from another blast of cold and snow headed into the Northeast. Winter storm warnings were posted as the third snowstorm in less than three weeks took aim at the New York City area. Prices rose for heating oil, which is used mostly in the Northeast to warm older homes and commercial buildings. The price of heating oil has risen almost 5 percent this week.

Oil prices also got support from Japan's promise to buy bonds to help finance Europe's bailout fund. The money from the sale will be used as part of an international bailout of Ireland, even as speculation lingers that Portugal and perhaps even Spain may be forced to seek help with financial problems.

"Every time we get a sign that the market is going to bail out Europe, it's always been bullish for oil," Flynn said.

In its short-term energy outlook issued yesterday, the Energy Department forecast oil prices will average US$93 a barrel this year, which would be US$14 more than the average price in 2010.

The EIA predicted the average U.S. household heating cost will be US$990 this winter, which would be US$22 more than 2010. Higher costs were expected for heating oil and propane, with costs unchanged for natural gas and lower for electricity.

EIA updates its short-term outlook every month.

In other Nymex trading in February energy contracts, heating oil rose 5.27 cents to settle at US$2.6088 a gallon, and gasoline futures gained 2.41 cents to settle at US$2.4784 per gallon. February natural gas futures added 8.2 cents to settle at US$4.481 per 1,000 cubic feet.

In London, Brent crude rose US$1.91 to settle at US$97.61 a barrel on the ICE Futures exchange.

Source: Shanghai Daily
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