Oil prices continued their relentless upward trend in the second week of August, climbing by more than $2 a barrel on new fears of instability in Saudi Arabia and more problems in the US refining system. OPEC's statement of reassurance that the crude market is well supplied fell on deaf ears. Spot Brent was trading at $64.01 a barrel on 10 August, compared with $61.50 a week earlier.
Following closely on the market jitters caused by the death of Saudi Arabia's King Fahd, the US on 7 August ordered the temporary closure of its diplomatic offices in Riyadh, Jeddah and Dhahran, citing security threats, although the Saudi government said that it had no concrete information about imminent terrorist activity. The US missions reopened two days later. US refineries continue to be accident-prone and gasoline stocks are still falling, in spite of crude imports in the week to 5 August that reached the second highest level in history, at 11.1 million barrels a day (b/d). The latest incidents were fires at refineries in Philadelphia and Texas. 'Refining remains the key bottleneck within the oil system, and the frailty of the US system in particular when being run to, and sometimes beyond, sustainable limits is a source of upside price risk,' says Paul Horsnell of Barclays Capital. 'After their sharper than normal declines in recent weeks, gasoline inventories are now somewhat too low for comfort in absolute terms, and they are far too low for comfort in terms of days of forward cover.' Gasoline stocks dropped by a further 1 per cent to 203.1 million barrels, according to the latest figures from the US Energy Information Administration published on 10 August, but the consequent rising prices at the pump are failing to dent consumer demand. Growing evidence of US economic recovery was provided on 8 August, with the release of data showing employment increasing for the fifth month running. OPEC rather forlornly tried to calm market fears and exonerate themselves from blame with a statement in response to the price spike on 9 August. 'Towards [the end of market stability with reasonable prices], OPEC conferences have repeatedly increased the production ceiling by more than 4 million b/d in recent years,' said Sheikh Ahmad Fahad al-Sabah, OPEC president and Kuwaiti Energy Minister. 'While consultations are ongoing after the decision of the June conference to increase the [production] ceiling to 28 million b/d, OPEC member countries have continued to place additional supplies on the market. OPEC 10 production is estimated to have reached about 28.3 million b/d, while total OPEC [including Iraq] is reportedly producing close to 30.4 million b/d and rising.' He cited the refining problems and geopolitical concerns as the main factors behind the price rise.