Oil Zooms Past $60 a Barrel

Oil prices surpassed $ 60 a barrel yesterday reflecting trader's concerns about strong demand and potential supply bottlenecks.

After climbing as high as $ 60.95 a barrel, an intraday record, crude finished 70 cents higher at $ 60.54 a barrel on the New York Mercantile Exchange. It was the highest settlement on record at the Merc, where crude oil futures began trading in 1983. The previous settlement high was $ 59.84 a barrel, set Friday.

Adjusted for inflation, prices peaked in 1980 above $ 90 a barrel.

Stocks crept lower as Wall Street steadied itself after last week's losses and waited for this week's Fed meeting on interest rates. Fears that second-quarter earnings could disappoint also weighed on the market.

The Dow fell 7.06 to 10,290.78 after dropping nearly 290 points last Thursday and Friday. The Nasdaq slipped 8.07 to 2,045.20.

The Fed is widely expected to raise rates for the ninth time in a year when it meets tomorrow and Thursday, but investors are waiting to see policymakers' assessment of the economy, to be issued at the end of the meeting.

Until the Fed's intentions are clear, investors are likely to do very little, said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.

"Is this the ninth inning or are we going into extra innings?" he said.

Analysts said oil prices could climb even higher, but for the moment, Wall Street didn't seem particularly worried.

"The market seems to be shrugging off oil a little bit," said Brian Gendreau, investment strategist at ING Investment Management.

"Perhaps there's a feeling that the selloff Friday was overdone."

Other petroleum products followed crude's rise.

Heating oil rose by more than 3 cents to $ 1.68 a gallon, while gasoline futures surged 2.5 cents to $ 1.68 a gallon.

"The psychology of the market is that once $60 is breached, then there is tendency to test how much higher it can go, or how long $ 60 can be sustained," said Victor Shum, petroleum analyst at Texas-based energy consultants Purvin & Gertz in Singapore. "There's a lot of speculative activity. It is a red-hot market," said Shum.

With demand expected to average 84 million barrels a day in 2005, analysts say there is not enough of a supply cushion to shield the market from any prolonged output disruption.

Excess production capacity is estimated to be about 1.5 million barrels a day, most of it in Saudi Arabia.

Another reason for trepidation among traders is the limited refining capacity in the U.S., which is increasingly reliant on imports of gasoline.

Any glitch in the U.S. refining system puts more strain on the global supply chain.