Tue Jul 27, 2004

LONDON (Reuters) - U.S. oil prices touched $42 a barrel on Tuesday, as speculative funds took a spate of refinery problems and forecasts of shrinking U.S. crude stockpiles as their cue to bid the market higher.

U.S. light crude (CLc1: Quote, Profile, Research) jumped 56 cents to hit $42.00, 45 cents below 21-year highs logged in early June.

London Brent crude (LCOc1: Quote, Profile, Research) rose 29 cents to $38.44, after hitting an eight-week high of $38.60.

Dealers said funds had fueled the rise as worries over supply disruptions in the Middle East and from financial problems at Russian oil company YUKOS kept prices bubbling.

Oil cartel OPEC is this month expected to pump 30 million bpd for the first time since 1979. That leaves most cartel members, except Saudi Arabia, with little spare capacity.

"We know there's high demand and the market reacts to any supply worries," said FIMAT analyst Julian Keites.

Traders expect Wednesday's weekly data on fuel stockpiles from the U.S. Energy Information Agency to provide renewed market direction.

Analysts polled by Reuters expect increased refinery activity to have cut crude stocks in the United States by 900,000 barrels in the week ended July 23. Supplies fell 3.6 million barrels in the previous week.

Gasoline stocks are expected to fall just 150,000 barrels, and traders have become more relaxed about gasoline supply as the summer peak-demand period gets into full gear.

The U.S. government reported stocks had risen 2.5 million barrels in the week ended July 16, widening the surplus over a year earlier to 5 million barrels.

GLOBAL REFINERY HITCHES

However, a string of refinery outages in Germany, the Netherlands, Turkey and Japan has rekindled concerns over gasoline and heating oil supplies.

Germany's largest refinery, Miro, said a fire last week had caused a 25 percent shortfall in gasoline production that would last for weeks.
Oil product supplies might also be crimped by the shutdown of a crude unit at a Total refinery in the Netherlands after a fire, though the unit was expected to resume operations in a few days.

A crude unit at Japan's biggest refiner, Nippon Oil Corp., was forced to close after a fire on Sunday, compounding the country's supply concerns as a heat wave spurs utilities' demand for oil just as Japan starts to stock up on kerosene for winter.

In South Korea, a strike at LG-Caltex Oil Corp entered its 10th day but Korea's second-largest refiner said it would restore 90 percent of operations on Tuesday as more striking workers returned.

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