Oil hits record, demand attracts funds

Mon Jun 20, 4:29 PM ET

NEW YORK (Reuters) - Oil prices set a new record high on Monday as worries about a winter fuel crunch stoked buying by hedge funds and forced OPEC to consider lifting supply quotas again.

U.S. light crude moved to a record for the second successive session, hitting $59.52 a barrel, before paring gains to settle up 90 cents at $59.37. London Brent futures rose 56 cents to $58.32 a barrel, having hit a peak of $58.58.

U.S. contracts for the last four months of the year, when oil demand seasonally picks up in the Northern Hemisphere, all traded at $60 or above, with December crude breaking $61.

"The main reasons for the continued momentum remain the same as they have been throughout the strong push up over the past month --- the perception of a tight balance for the back end of this year in a market with limited slack," said Kevin Norrish of Barclays Capital.

"That lack of flexibility has also greatly increased the sensitivity of the market to any potential interruption," he said, referring to anxiety over the U.S. embassy closure in oil exporter Nigeria on Friday after a threat from militants.

The United States reopened its consulate on Monday.

Average U.S. crude prices so far this year are up more than $10 a barrel at over $51 despite almost flat-out pumping by the Organization of Petroleum Exporting Countries.

The group's president said on Monday he would consult other member states on releasing an additional 500,000 barrels per day (bpd) of crude.

"If prices continue to increase as it is now, by the end of this week ... I will start consultation with my colleagues to release the 500,000 bpd," Sheikh Ahmad al-Fahd al-Sabah told reporters in Kuwait.

But only Saudi Arabia has spare capacity and Riyadh says it cannot find buyers for more crude. OPEC says it is doing all it can to meet demand, blaming high prices on a shortage of advanced refining capacity to meet Western regulatory standards for petroleum products.

Oil has set new highs following evidence last week that high prices have failed so far to make a dent in U.S. fuel demand, particularly for distillates including diesel.

While crude inventories are close to six-year highs, stocks of diesel and heating oil are low by historic standards, taking into account rising demand.

U.S. consumption of distillates, including heating oil and diesel, over the past four weeks was 6.5 percent higher than a year earlier, more than twice the growth in gasoline.

The strength of the U.S. economy in the face of high prices is a leading factor for the international crude market and some think inflated energy costs may soon start to bite.

"When people start looking at their air-conditioning bill and they start getting back from summer vacation and look at how much it cost to fill up their tank of gas -- maybe this economy can handle that, but I question it, frankly," said Steven Farris, chief executive of U.S. independent Apache Corp.

In Asia, traders said Chinese demand should pick up soon as businesses fire up diesel-fueled generators to overcome summer power shortages.

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