WASHINGTON – Oil prices briefly surpassed $69 a barrel Tuesday, gaining strength from a rally in gasoline futures and declarations from Iran's president that the country had successfully enriched uranium for the first time.
The oil-market jitters stemming from Iran's nuclear standoff with the West are compounded by violence in Nigeria, which has resulted in more than half a million barrels per day of lost production, and by the fact that more than 300,000 barrels per day of Gulf of Mexico output remain shut more than seven months after Hurricane Katrina. The next U.S. hurricane season begins June 1.
With daily global demand expected to average 85 million barrels per day in 2006, and the world's suppliers operating with less than 2 million barrels per day of excess production capacity, any additional output snags are likely to drive prices higher, analysts say.
After climbing to $69.45 a barrel in overnight electronic trading — a high for 2006 — light, sweet crude for May delivery settled at $68.98 on the New York Mercantile Exchange, an increase of 24 cents from Monday's settlement price.
Prudential Financial analyst Aaron Kildow said he expects oil prices to keep trucking higher, with intermittent pauses and retreats. "The whole market feels bullish," he said.
But oil analyst Timothy Evans of IFR Energy Services said there was "risk of exhaustion" in the oil market as prices approach $70 a barrel, not least because U.S. oil inventories are at a seven-year high.
On Tuesday, gasoline futures climbed 4.52 cents to settle at $2.0544 per gallon, roughly one-third percent higher than a year ago.
The average retail price of regular unleaded is $2.69 a gallon nationwide, compared with $2.28 this time last year, according to Oil Price Information Service.
The usual pre-summer gasoline supply worries are heightened this year by the prospect of tight supplies of ethanol, which is being blended with gasoline in increasing amounts as refiners phase out their use of additive MTBE, which has been found to contaminate groundwater. Moreover, gasoline demand over the past four weeks is up 1 percent from a year ago — evidence that the high prices are not sapping consumption.
Nymex heating oil prices rose 1.01 cent to close at $1.9555 a gallon. Natural-gas futures edged 2.6 cents higher to finish at $6.908 per 1,000 cubic feet.
While crude futures are 27 percent higher than a year ago, they are still below the record levels reached after Hurricane Katrina hit the Gulf Coast last year. On Aug. 30, front-month crude-oil futures traded as high as $70.85, then settled at $69.81.