Oil Prices Surge

Oil Surges Back to $51 as Bush Nears Win
Wednesday November 3, 2:34 am ET
By Jonathan Leff


SINGAPORE (Reuters) - Oil prices spiked up above $51 a barrel on Wednesday as increasing signs of an electoral victory for President Bush raised the prospect of continued high demand in the world's biggest energy consumer.



U.S. election tallies projected a growing lead for Bush, including the key swing states of Ohio and Florida, helping to reverse a slide in prices this week on speculation that a win by Democrat Senator John Kerry could usher in lower prices.

U.S. light crude surged as high as $51.20 a barrel, putting a floor under a week-long 12 percent rout. At 2:24 a.m. EST, U.S crude was up $1.27 at $50.89.

"A Bush administration continued in its present form would have a Department of Energy that is extremely fossil fuel-centric and, because of the focus on fossil fuels, we would expect prices to rise," said economist Jason Schenker at Wachovia Securities.

Bush has captured 269 of the 270 electoral votes needed to win, while Kerry has 207, U.S. networks said. But only two of the five networks have called the pivotal state of Ohio in Bush's favor, threatening to delay the verdict.

Healthier U.S. crude supplies and worries over slowing global economic growth have helped prices retreat from last week's all-time high of $55.67, but the U.S. election has taken the spotlight in the run-up to Tuesday's vote.

Bush has said he would continue filling the strategic petroleum reserves (SPR) to capacity, a policy Kerry had promised to reverse. Analysts also said Kerry would be more likely to pursue energy conservation and alternative fuels.

"This is going to 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 reserve is about 30 million barrels shy of its 700 million barrel target.

Some analysts said a Bush win could stoke nervousness about U.S. policy in the oil-producing Middle East, particularly Iran, while Kerry is seen as more likely to work through conventional diplomatic channels.

"In particular, 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.

STOCKS TO TAKE AFTERNOON FOCUS

The market's focus is likely to shift later on Wednesday to weekly U.S. commercial oil inventory data, forecast to show heftier crude tanks but yet another fall in distillates, including heating oil.

A Reuters poll forecast crude stocks will rise 2.2 million barrels but projected a modest 600,000-barrel decline in distillates, including heating oil.

Winter fuel supplies were significantly below 2003 levels in last week's figures, although warmer-than-usual weather in the heavy consuming eastern United States might give refiners more time to top up supplies, traders say.

Fears of flagging economic growth after several disappointing economic indicators have also dimmed the outlook for oil demand next year, with growth expected to slow from this year's blistering pace, the strongest in a generation, traders say.

Even the biggest attacks yet against Iraq's northern pipeline infrastructure had initially failed to turn the market's bearish retreat this week.

Iraq was forced to halt 300,000 barrels per day (bpd) of exports via Turkey on Monday after saboteurs blew up four pipelines in the span of 24 hours.

Tanker liftings are expected to continue on schedule thanks to crude lying in storage tanks at the Turkish port of Ceyhan.