Washington, August 11:

US oil prices continued this month’s steep increase, reaching $65 a barrel for the first time. The cost of crude for September delivery has risen more than seven per cent in August and has been setting records near daily. Concerns about both supply and demand have resulted in the sharp increase. The death of Saudi Arabia’s King Fahd has been a contributing factor to the recent hikes. Meanwhile, Daily Gulf News has reported that the latest turmoil in the oil market, which sent prices to new record levels, is partly due to bottlenecks in global refining capacity — a looming problem for some time but only a recent preoccupation for the market. A series of incidents at important refineries in the last few weeks has prompted knee-jerk buying, demonstrating the sensitivity of the market to news of any threat to global output.

First, an explosion at BP’s biggest US refinery in Texas, where a similar accident killed 15 people in March. Then ExxonMobil joined the casualty list by reporting problems at its refinery in Joliet, Illinois.

The twitchy reaction of oil traders reflects growing worries in the market about the lack of spare distillation capacity in the system, reported Daily Gulf News today. This fear joins a long list of explanations for the doubling of oil prices since the beginning of 2003: geopolitical tensions, higher-than-expected demand, and speculative buying. Fears about refining capacity

have also coincided with the start of the ‘driving season’ in the US, the start of the summer holidays when US highways are filled with holidaymakers.