NEW YORK, Jan 21 (Reuters)

- U.S. oil prices spiralled higher again on Friday as buyers scrambled to take out insurance against the prospect of a deepening shortage of supply on the world petroleum market.

Oil buyers are taking no chances that the Organization of the Petroleum Exporting Countries might relent and ease the output limits which have forced oil prices to nine-year highs.

In near panic scenes on the New York Mercantile Exchange, reminiscent of the 1990-1991 Gulf crisis, crude jumped another 60 cents to $28.57 a barrel for March delivery. February crude had peaked at $29.95 before expiry on Thursday.

``We haven't seen trade and volatility on the oil market like this in non wartime conditions for 15 years,'' said Peter Gignoux of Salomon Smith Barney.

``OPEC seems to have adopted a very aggressive strategy and appears set to increase production only if there are no alternatives to preventing markets from overheating,'' said Washington's Petroleum Finance Corp. in a note to clients.

Many traders think that point already has been reached.

``The heating oil market now is most definitely overheated,'' said Nauman Barakat of ABN Amro in New York.

U.S. home heating oil rose most sharply on Friday, propelled by a lengthening cold snap in the U.S. Northeast, the world's largest single market for the petroleum product.

Weather forecasters expect the week-old cold spell in the Northeast to continue until the end of January, acclerating a drain on already lean heating oil stocks.

NYMEX February heating oil futures were up nearly 10 cents a gallon in late morning trade at 96.25 cents. Cash heating oil in New York Harbor cost a further 35 cents a gallon. Cash prices have more than doubled in nine days, futures are up 50 percent.

While some OPEC watchers still suspect that the cartel may pull a surprise and shortly ease its output restrictions, ministers show no public sign of changing their strategy.

A year-long agreement among OPEC and non-OPEC allies Mexico and Norway keeping nearly five million barrels daily from the 75 million bpd world market is due to expire at the end of March.

But oil ministers from three OPEC countries reiterated after a meeting on Friday that the cartel has no intention of letting its customers off the hook. [because they can't, they have y2k problems are playing HIGH STAKES POKER imho - Andy]

Libya's Oil Minister Abdullah al-Badri told Reuters from Tripoli that he and his counterparts from Iran and Algeria had agreed to propose to OPEC's March 27 conference that the export limits be kept in place until September.

Energy economists say that will drag inventories below commercial minimum operating levels.

The International Energy Agency in Paris on Thursday warned that commercial inventories of crude and petroleum products now at 10-year lows would suffer another 2.5 million barrel a day shortfall during the first quarter.

Oil's swift rise has raised concerns in the finance ministries of the world's industrialised powers that dormant inflationary pressures might be reignited.

European Central Bank Chief Economist Otmar Issing said he now fears that a temporary rise in inflation could become more permanent if it leads to higher wage settlements.

``We see developments in headline inflation heavily impacted by oil prices, which have tripled in 12 months,'' Issing said in London.

Quite soon inflationary pressures affecting crude oil will overflow into the precious metals market, especially gold.

The rise in Black Gold will eventually beget a surge in Yellow Gold values.

-- Andy (2000EOD@prodigy.net), January 21, 2000

Answers

At the risk of appearing rather uhmm 'uniformed', lets just say I am a bit confused. So we here in the NorthEast ( cleveland ohio area ) are to be the 'blame' for 'draining' the supply???? HELLLLLOOOO, it has been the mildest winter I've seen in a very long time. Am I to believe that just because it finally has turned winter here in the NorthEast that it is now 'our' fault? What AM I missing??????

-- consumer (shh@aol.com), January 21, 2000.

You think YOU'RE uninformed and confused?

wait until LMAO and Crig the cannuck cretin appear on the threads again, ho ho ho

-- Andy (2000EOD@prodigy.net), January 21, 2000.

Welcome to the spin dry cycle, consumer.

Today I've read several articles that state that the run-up in crude is due to the price of heating oil. [Crude began it's run up a year ago, heating oil was calm until last week, but it's supposed to be a heating oil driven market. Go figure.]

Now, what can you blame things on?

1. Y2k -- and we know they won't do that

2. OPEC -- yup, we're getting a little of that

3. Sudden and "excessive" demand -- provides a reason that fits into a sound byte for the 5 o'clock news.

One OPIS article even mentioned the JIT inventory system as a cause of the problem.

BTW, I stopped by my heating oil dealer today to pay my bill from pre-roll fill up, and heard talk about how people hadn't bothered to fill their tanks this year because of the weather. It had been so nice they just didn't pay attention. So, the good weather lulled a few people to sleep.

-- rocky (rknolls@no.spam), January 21, 2000.

... but we have seen it before, right? Both in peace and in police action (sorry, war, we won that one).

Again; anyone know how this "all time high" compares to (e.g.) the price in the 1989 supply snafu after adjustment for growth/inflation?

-- Servant (public_service@yahoo.com), January 22, 2000.

Servant,

When folks say that oil is cheap today compared to a decade ago, or that gasoline is cheap in this country compared to other countries, other folks get the impression that the price could rise with little impact. After all, the higher price does not seem to hurt the Brits, does it? We were OK a decade ago were we not?

However, comparing the price of oil this week to the price of oil eleven years ago is misleading. Here is why: The price of oil was at equilibrium with all other prices just a few short MONTHS ago. Increasing the price of oil this week, has an impact on other prices - regardless of the inflation adjusted price of oil years ago. That is because ALL the prices have changed over the last decade, not just the price of oil. An increase in the price of oil will cause all other prices to go up in this country. It will increase inflation, increase the cost of borrowing, and decrease the chances that someone can afford a replacement auto or a home for their growing young family.

The comparison of today's oil cost to that of another decade is therfore not only a waste of time, it is a deception - for it makes folks feel more comfortable with the increase when NO comfort is warranted.

Sincrerely,

-- Uhhmmm... (JFCP81A@aol.com), January 22, 2000.