Crude oil futures top $41 per barrel on terror fears

NEW YORK - Crude oil futures surpassed $41 a barrel Wednesday afternoon in New York for the first time since early June amid new fears about terrorist attacks on oil facilities and bullish inventory data.

Prices spent much of the morning in the red, but jumped amid reports that foreign oil tankers are turning away from Iraqi export terminals because of security concerns, and that the FBI has warned about terrorists' interest in U.S. energy-related infrastructure, traders said.

"With tight worldwide inventories, any terror threat has an immediate impact on prices," said Phil Flynn, an analyst at Alaron Trading in Chicago. U.S. inventories "do not provide us with the type of cushion that can make us feel comfortable with the threat of terror against the oil industry," he said.

Time magazine recently reported that the FBI sent a classified intelligence bulletin last week to 18,000 local law enforcement agencies warning "recent terrorist attacks and incidents occurring overseas highlight terrorists' interests in targeting energy-related infrastructures."

Earlier in the session, traders had largely shrugged off data showing an unexpected decline in U.S. crude oil inventories. But the back-to-back reports lured buyers wary of supply disruptions into market, traders said.

At the New York Mercantile Exchange, August crude futures jumped as high as $41.05 per barrel before settling up $1.53 at $40.97. August gasoline rose 3.07 cents to $1.3160 per gallon; August heating oil rose 3 cents to $1.0917 per gallon; and August natural gas rose 7.2 cents to settle at $5.977 per 1,000 cubic feet.

August Brent blend futures on London's International Petroleum Exchange rose $1.85 to close at $38.54.

Data released earlier by the Department of Energy's statistics arm was seen as mildly bullish for crude oil futures.

In the week ended July 9, commercial inventories of crude oil declined by 2.1 million barrels to 302.9 million barrels, despite a record streak of high imports.

The drop points up concerns expressed by the Energy Information Administration last week that strong demand is keeping markets tight and inventories lean even as suppliers deliver on pledges to pump more crude.

Speaking on CNBC, Barclays Capital analyst Kevin Norrish said the latest figures show demand is still robust.

"Everyone was looking for a build in crude stocks, and now they are wondering, 'Where is it?" said Tony Rosado, an energy trader with Zone Energy in New York.

Strong oil demand is soaking up extra production from the Organization of Petroleum Exporting Countries and leaving producers little spare capacity to cover supply disruptions.

Uncertainties over Iraqi oil exports, Yukos' financial problems and the continued threat of unrest in Nigeria are also bullish factors for the market, analysts said.

The EIA is concerned that dynamic could keep prices at current levels through 2005. Inventories aren't building as they need to, and any price weakness is likely to be temporary, Norrish said.

"I don't think there's going to be too much downside on the oil price," he said.

The inventory report wasn't entirely bullish. Besides the crude-oil draw, the EIA reported a larger-than-expected 2.7 million barrel build in distillate inventories.

The distillate build bodes well for heating oil inventories growing to comfortable levels ahead of the high demand winter season, said independent Nymex trader Eric Bolling.

Gasoline stocks fell by 200,000 barrels.