Natural gas futures declined to their lowest level in almost a year on Friday amid soaring inventories of the mostly domestic fuel used to heat homes and produce electricity.

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Analysts said the price of natural gas could fall even further in the months ahead, given relatively weak demand and expectations of rising supplies, though they cautioned that production in the Gulf of Mexico remains hindered by damage from last year's powerful hurricanes Katrina and Rita.

"Unless we have a repeat of last summer's hurricane season, we're going to have so much (natural) gas in storage by September that we won't have anywhere to put it," said Daniel Lippe of Petral Worldwide Consulting in Houston.

Meantime, oil prices fell but finished the week roughly $2 a barrel higher as traders' concerns about geopolitical threats and refinery snags trumped evidence of rising supplies and forecasts calling for weakening global demand.

Crude futures dipped toward $72 a barrel Friday after the International Energy Agency reduced its 2006 world oil demand forecast. Earlier in the week, the U.S. Department of Energy said domestic gasoline supplies increased for the second straight week.

Still, oil prices are about 48 percent higher than a year ago, a reflection of the market's fear about real and possible output disruptions at a time when the world's supply cushion is perilously thin. Only Saudi Arabia has any spare production capacity to speak of, analysts say, but it is less than 2 percent of daily global demand of almost 85 million barrels and not the high quality crude that refiners prefer.

In Nigeria, violence has curtailed output for months by roughly a half-million barrels per day. And in the Gulf of Mexico, more than 300,000 barrels per day remains shut as a result of damage from last summer's hurricane season.

But perhaps the biggest supply related worry is, for now, a theoretical one. Iran, OPEC's second largest producer, refuses to give up its uranium enrichment ambitions and the U.N. Security Council has the power to impose sanctions. Analysts fear Iran could retaliate by withholding oil from the market, even though the country's oil minister has repeatedly said this would not occur.

On Friday, light sweet crude for June delivery fell $1.42 to settle at $72.04 a barrel on the New York Mercantile Exchange. A week ago, oil had finished at $70.19 a barrel. June Brent crude on the ICE Futures exchange lost 54 cents to $72.89 a barrel.

Natural gas futures declined by 36.9 cents to settle at $6.28 per 1,000 cubic feet, the lowest close since May 27, 2005, when natural gas traded at $6.37. Natural gas futures zoomed above $15 in December as traders fretted the loss of supply from the Gulf of Mexico following hurricanes Katrina and Rita.

But domestic inventories climbed this week to almost 2 trillion cubic feet, or 56 percent above the five-year average for this time of year.

Lippe said demand has tapered off in recent months due to a combination of warm winter weather and high prices, which forced industrial users to become more efficient, shut plants or use alternative fuels. Traders "are starting to factor that into their thinking," Lippe said.

The Paris-based International Energy Agency said in its monthly oil market report that high prices and mild temperatures curbed U.S. oil demand in the first quarter. The agency also noted strong exports from countries formerly part of the Soviet Union, and concluded that this implied weakening demand.

"This is not fresh news, but this is a confirmation" that high energy prices are affecting demand, said analyst Peter Beutel of Cameron Hanover Inc.

Specifically, the energy watchdog cut 220,000 barrels a day off its demand growth forecast for the year, trimming it to 1.25 million barrels a day and thus putting average daily demand at 84.84 million barrels.

Economist Ed Yardeni of Oak Associates believes, however, that U.S. consumers will be able to afford stubbornly high gasoline prices thanks to rising employment and wages. "Gasoline sales cost consumers only 4.5 percent of their disposable income in April, up about a percentage point since August 2004," Yardeni said in a research note.

U.S. retail gasoline prices average roughly $2.89 a gallon, or about 70 cents more than last year.

In other Nymex trading, gasoline futures fell by more than 4 cents to settle at $2.1785 a gallon, while heating oil prices dropped almost 5 cents to settle at $2.0467 a gallon.

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