Oil Rises Above $104 to Record on OPEC Output, Venezuela Tanks

March 5 (Bloomberg) -- Crude oil rose above $104 a barrel to a record in New York after OPEC gave no indication it will increase production, U.S. fuel inventories declined and Venezuela sent tanks to its border with Colombia.

The Organization of Petroleum Exporting Countries agreed to maintain production targets at a meeting today in Vienna. U.S. supplies fell for the first time in eight weeks, the Energy Department said. Venezuela activated the country's navy and air force in addition to 10 tank battalions being mobilized.

``Venezuela is sending troops to the Colombian border and everyone is a afraid that things will escalate,'' said Adam Sieminski, Deutsche Bank's chief energy economist in New York. ``Analogies with Kuwait in 1990 are being made. As if that's not bad enough, crude inventories fell more than 3 million barrels when they were supposed to rise.''

Crude oil for April delivery rose $4.89, or 4.9 percent, to $104.41 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Futures touched $104.64 a barrel, the highest since trading began in 1983. Prices are up 74 percent from a year ago.

Brent crude for April settlement rose $4.21, or 4.3 percent, to $101.73 a barrel on London's ICE Futures Europe exchange. Futures reached a record $102.29 a barrel on March 3.

On Oct. 15, prices passed the previous all-time inflation- adjusted record reached in 1981 when Iran cut oil exports. The cost of imported oil used by U.S. refiners averaged $39 a barrel in February 1981, according to the Energy Department, or $92.50 in today's dollars.

OPEC Concerns

``OPEC decided not to change production but there were comments that raised concerns, helping to push prices higher,'' said Rachel Ziemba an analyst of RGE Monitor, an online economic research company in New York. ``The OPEC communiqué and oil- minister statements raise the possibility that even if supplies aren't tight, that might not be the case in the future.''

Saudi Arabian Oil Minister Ali al-Naimi, who sets policy in the world's largest oil exporter, said earlier that supply and demand are stable. Naimi said that OPEC's aim was to keep stockpiles near the five-year average.

``While the OPEC agreement was expected, al-Naimi did say a couple things that are boosting the market,'' said Brad Samples, commodity analyst for Summit Energy Inc. in Louisville, Kentucky. ``He said OPEC doesn't want inventories to rise above the five- year average, which indicates they'll have to manage supply soon. Al-Naimi also said he doesn't sense that demand is weakening.''

U.S. crude-oil inventories in the week ended Feb. 22 were 7 percent above the five-year average for the period, the Energy Department said last week.

Bush Request

``I think it's a mistake to have your biggest customer's economy slowing down as a result of high energy prices,'' President George W. Bush said yesterday.

Gasoline for April delivery rose 10.91 cents, or 4.3 percent, to $2.6382 a gallon in New York. Futures touched $2.7325 on March 3, an intraday record for gasoline to be blended with ethanol, known as RBOB, which began trading in October 2005.

Venezuelan President Hugo Chavez on March 2 ordered the battalions to the border in response to a Colombian air raid against a guerrilla camp in Ecuador the day before. Venezuela and Ecuador are the only members of OPEC in the Western Hemisphere.

``I have long said you should watch what the Venezuelans do, not what they say; now they are doing something,'' said Robert Ebel, chairman of the energy program at the Center for Strategic and International Studies in Washington. ``I think this is more of a test of wills than anything but we have to keep an eye on the situation.''

U.S. Supplies

Crude-oil supplies fell 3.06 million barrels to 305.4 million in the week ended Feb. 29, according to the Energy Department. A 2.4-million-barrel gain was forecast, according to the median of responses by 15 analysts surveyed by Bloomberg News before the report's release.

``There's a significant reversal in sentiment about inventories,'' said Antoine Halff, head of energy research at New York-based Newedge USA LLC. ``The notion that the build in crude- oil stocks was inexorable is unraveling.''

Supplies of distillate fuels, a category that includes heating oil and diesel, fell 2.33 million barrels from 117.6 million barrels last week, the report showed.

Heating oil for April delivery rose 14.75 cents, or 5.3 percent, to $2.9393 a gallon. The contract touched $2.9466, the highest since trading began in 1978.

Crude-oil prices also rose because the dollar dropped to an all-time low against the euro, increasing the appeal of commodities as an alternative investment. The dollar touched $1.5303 per euro, the weakest since the euro's start in 1999, from $1.5217 yesterday.

Commodity Rush

``There's a continuing rush by investors into the commodity market,'' said Kyle Cooper, director of research at IAF Advisors in Houston. ``The rally isn't based on the fundamentals of the energy market.''

Gold and corn also rose to records today. Gold futures for April delivery climbed as much as 3 percent to $995.20 an ounce, the highest ever, on the Comex division of the Nymex.