Wed Aug 18, 2004
By Richard Mably

LONDON (Reuters) - Oil prices surged to a new high above $47 a barrel on Wednesday on evidence that energy costs are not substantially slowing the economic growth that fuels oil demand.

Fresh threats by rebel militia in Iraq against oil facilities and a fall in U.S. crude stockpiles helped support price gains.

U.S. light crude rose 60 cents to a record $47.35 a barrel before easing to $46.70. London Brent added 41 cents to a new peak of $43.40 a barrel, easing later to $42.80. U.S. oil has set all-time highs in all but one of the last 14 trading sessions and is up $10 a barrel, 27 percent, since the end of June.

German Chancellor Gerhard Schroeder said that, while high prices were a concern, global growth remained strong.

"We don't currently see any negative impact from the oil price and we still have very robust global growth," Schroeder told a press conference in Berlin.

The United States on Tuesday said consumer prices fell in July for the first time in eight months, indicating underlying inflation pressures are largely under control in the world's biggest oil importer.

"The economy overall is unaffected by oil prices at this high level. That suggests retail oil demand will continue to be healthy," said Tony Nunan, manager at Mitsubishi Corp. 's international petroleum business.

China recorded 21 percent oil demand growth in the first half of the year and crude imports by the world's second-largest oil consumer are up 40 percent year-on-year to the end of July, according to recent data. That indicates Beijing's bid to slow economic growth has yet to make much impact on energy demand.

U.S. oil demand so far this year is up 3.4 percent, preventing inventories from building much as rising consumption soaks up extra imports from OPEC suppliers like Saudi Arabia.

U.S. Energy Information Administration inventory data for the week ended Aug. 13 estimated commercial crude stocks fell 1.3 million barrels to 293 million, the third week in a row that inventories have fallen.

"It's all about demand and stocks," said Leo Drollas, chief economist at London's Center for Global Energy Studies. "As long as there are only 18.5 days worth of U.S. crude stock cover, prices will hold near $45 because any problem in supply anywhere in the world feeds directly into the futures price."

Leading OPEC power Saudi Arabia said this week it is pumping as much as possible in a bid to lower prices to $25-$30 a barrel.
The Organization of the Petroleum Exporting Countries in a report said it expected cartel output to reach 30 million barrels a day in August and 30.5 million bpd in September from 29.57 million last month.

But fears are that global production capacity is stretched close to its limit.

"Any significant capacity is seen as unreliable -- Iraq, Russia and Venezuela for instance. Ongoing violence in Iraq is reinforcing the mood," said David Thurtell, commodities strategies at Commonwealth Bank of Australia.

In Iraq, a group claiming links to rebel cleric Moqtada al-Sadr said it was responsible for setting an oil well on fire and vowed to attack the country's main southern pipeline if U.S. forces besieging al-Sadr in Najaf do not leave the holy city.

Iraqi delegates to a conference choosing a national assembly in Baghdad said that al-Sadr had agreed to government demands to end an uprising in Najaf and would leave the city's Imam Ali Mosque.

Iraq's southern pipeline has been closed since a sabotage attack on August 9, restricting export flows through a second line to about one million barrels daily, half normal supply rates.

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