Oil treads water after surge on gasoline anxiety

SINGAPORE, May 18 (Reuters) Brent crude hovered above $70 a barrel on Friday after surging to an eight-month high on fears that more US refinery outages will constrict gasoline supplies already at unusually low pre-summer levels.

London Brent crude slipped 11 cents to $70.16 a barrel by 0226 GMT, eroding only a fraction of the previous day's more than $2 or 3.3 per cent gains, the biggest one-day rise since a 5 per cent surge in late January.

US crude for June delivery was up 8 cents at $64.94 a barrel having rallied 3.7 per cent a day ago.

News of a glitch at Murphy Oil's refinery in Meraux, Louisiana, coupled with maintenance at several major plants in Texas has exacerbated fears that gasoline supplies may grow tighter as the peak-usage driving season draws nigh.

''Gasoline demand is still very strong despite higher prices,'' said ANZ Bank analyst Andrew Harrington. ''There are expectations for a strong driving season.'' Travel and automobile group AAA said on Thursday that it expects a 1.7 per cent rise in the number of Americans who are likely to travel 50 miles or more over the Memorial Day holiday that marks the start of the summer vacation season. The forecast is based on a poll of 2,000 adults.

US gasoline futures led the energy complex's gains on Thursday, surging 4.3 per cent to push its premium over crude up more than $1.50 to nearly $37 a barrel, near the intra-day $40 record high that followed Hurricane Katrina in 2005.

On top of recent refinery glitches, BP will shut down a gasoline unit at its vast Texas City plant for an 11-day turnaround, and ConocoPhillips will shut a 67,000-barrel-per-day unit in Texas for a month-long overhaul.

Those outages could deepen the deficit in gasoline stocks, which are now more than 7 per cent below their five-year average for mid-May, according to US government data.

The continued loss of a slug of Nigeria's gasoline-rich crude has also lent support to prices, although gains were tempered by news on Thursday that Nigerian villagers had ended their occupation of a Royal Dutch Shell oil hub.

OPEC Secretary-General Abdullah al-Badri reiterated this week that the group saw no need to unwind its production cuts given the healthy state of crude oil inventories, saying that he was comfortable with prices in their current range.

''The OPEC comments that the world is amply supplied, despite what the IEA said, is creating a certain amount of confidence around OPEC quotas not being changed,'' said Harrington.

Some oil traders were also keeping an anxious eye on violence in the Middle East, where Israel has launched air strikes against Hamas security forces in Gaza as six days of fierce internal fighting verge on civil war.

REUTERS PM PM1202