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Storm Drives Up Oil Prices

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AP / CBS
Oil prices approached $50 a barrel Monday as domestic and foreign supply concerns persist amid strong global demand.

Light crude for November delivery was 74 cents higher at $49.62 a barrel in morning trading on the New York Mercantile Exchange, surpassing a previous intraday high of $49.40.

Crude futures settled Friday at a record $48.88 per barrel. Adjusting for inflation, today's prices are still more than $30 below the level reached in 1981 after the Iranian revolution.

"A lot of what you're seeing is a response to Hurricane Ivan," said John Vautrain, a Singapore-based vice president for Houston-based energy consultant Purvin and Gertz.

Over the past two weeks the nation's supply of crude has fallen by 16.1 million barrels due to Ivan-related disruptions to oil production and shipping, according to the Energy Department. This comes at a time of year when oil supplies typically grow as gasoline demand tapers off and refiners briefly shut down to perform maintenance.

When the government's weekly petroleum supply report comes out Wednesday, analysts expect to see sharp declines in the nation's inventory of oil for the third straight week due to the lingering impact of Hurricane Ivan.

The federal Minerals Management Service reported Friday that daily oil production in the Gulf of Mexico is 27 percent below normal at about 1.2 million barrels per day. Ten million barrels of oil have been lost since Sept. 13, when offshore producers began evacuating crews ahead of Ivan's arrival.

Prices were strengthened Monday by reports of clashes in Saudi Arabia between government forces and suspected al Qaeda-linked militants and mortar attacks on the Iraqi Oil Ministry in Baghdad.

Also Monday, the Organization of Petroleum Exporting Countries, or OPEC, admitted that its decision to boost production by a million barrels per day from November has failed to calm the market.

Underpinning today's higher prices is the increasing sense of supply tightness in global oil markets.

With global oil demand roughly 82 million barrels a day, the amount of excess oil production available is only about 1 percent, according to many analysts, leaving the industry a slim margin for error in the event of a prolonged supply interruption.

The Energy Department said Friday it would lend 1.7 million barrels of oil to refiners whose operations have been strained by Ivan, though analysts expect these fuel loans to have limited impact on prices.

The price of oil is up roughly 75 percent from a year ago.