NEW YORK – Oil prices surged more than $1 on Wednesday as the re-election of President Bush countered the impact of a big increase in spare oil supplies ahead of winter.
Crude dealers said Bush’s victory over Democrat Senator John Kerry could bolster US fuel demand and underscore anxiety over the security of Middle East oil shipments.
US light crude settled up $1.26 to $50.88 a barrel, climbing back over the psychological $50 mark after settling below it for the first time in a month on Election Day. Brent crude was up $1.01 to $47.56.
A second Bush administration will likely continue filling US emergency oil stockpiles despite high prices and could stoke nerves about US policy in the Middle East, particularly OPEC ‘s second-biggest producer Iran.
“A Bush victory will be big for oil demand and keep prices high,” said Phil Flynn, an analyst at Alaron Trading in Chicago. “Not only will the SPR be filled, but I think they may expand it.”
The Bush White House has said it plans to fill the final 30 million barrels of the 700 million barrel Strategic Petroleum Reserve (SPR) by next year, which adds to already strong demand from end-users.
Prices had tumbled from last week’s record high at $55.67, pressured by speculation that a win for Kerry would halt deliveries into the SPR, and do more to encourage energy conservation.
Dealers had also speculated that Kerry’s policy in the energy-rich Middle East would be less aggressive than Bush’s and more prone to move through diplomatic channels.
“If another Bush government moves on to Iran, then oil prices would go very high and really threaten China’s economic development,” said Andy Xie, Morgan Stanley’s chief Asia economist.
China’s economic expansion has driven the fastest growth in world oil consumption for a generation this year.
Some nations will face economic recession if oil prices stay above $40 a barrel, the International Energy Agency (IEA)’s chief economist Fatih Birol said on Wednesday.
“At this price level, not just above $50 but also above $40, Europe and developing countries are in risk of recession,” Fatih Birol said.
Oil company share prices on the New York Stock Exchange were also stronger Wednesday, with ChevronTexaco up $1.17 to $53.27, ConocoPhillips up $1.97 to $85.40, ExxonMobil up 84 cents to $49.27.
The high prices come despite signs of increasing supply, boosted by the highest output from the OPEC cartel in 25 years and by increased exports from Iraq over the last two months.
The US government’s Energy Information Administration reported Wednesday that crude stocks rose last week by 6.3 million barrels, briefly pressuring prices below $49 a barrel by easing supply worries ahead of winter.
Crude stocks have risen more than 10 million barrels in the last two weeks as they recover from the impact of Hurricane Ivan which tore into the oil-producing US Gulf of Mexico in September.
“Imports are back at comfortable levels so any concerns about crude availability have been dissipated considerably,” said Jim Ritterbusch, President of Ritterbusch and Associates.
The US crude build was accompanied by a 900,000 barrels fall in distillate stocks, including heating oil and diesel fuel, to 115.7 million, 12 percent below last year, the EIA said.
US distillate demand is running 8.1 percent above last year as solid economic growth bolsters diesel consumption. Traders expected supplies to improve as refineries come back on stream following seasonal maintenance work.
“The market believes when refiners return from turnarounds, that they are going to push distillate output to a record, thus easing concerns of a supply shortage this winter,” said Ed Silliere, analyst, Energy Merchant Corp, New York.