Oil Jumps Above $72 on China Demand

Published May 30, 2006

| Associated Press

Oil prices rose above $72 a barrel Tuesday ahead of an OPEC meeting in Venezuela and the start of the Atlantic hurricane season later this week.

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The Memorial Day holiday marked the beginning of the peak driving season in the U.S., a period when energy traders are extra skittish about any loss of oil production or refining capacity.

This nervousness is palpable even though domestic crude-oil inventories are ample and gasoline demand in recent weeks has been flat compared with a year ago.

"The market's more sensitive to bullish news than bearish news right now," said Aaron Kildow, a broker at Prudential Securities in New York.

To explain this, analysts point to the world's limited spare production capacity, which has the effect of making any real or perceived hiccup in the global energy trade that much more threatening.

Some of the top international concerns keeping prices elevated include diplomatic tensions between the West and Iran over Tehran's nuclear goals, violence in Nigeria and rising energy demand in China.

After climbing as high as $72.75 per barrel, light sweet crude for July delivery settled 63 cents higher at $72.03 a barrel on the New York Mercantile Exchange.

July Brent crude at London's ICE Futures exchange gained 78 cents to $71.37 a barrel.

"Thursday's OPEC summit is going to be the big fundamental story of the week," said Citigroup oil analyst Timothy Evans.

Venezuelan President Hugo Chavez wants the cartel to cut production — a familiar refrain from a country known as a price hawk — but other OPEC countries, including Qatar and the United Arab Emirates, are calling for no change to the group's official 28 million barrel per day production quota.

Traders also are watching the June 1 official start of the U.S. Gulf of Mexico hurricane season, which is expected to be more active than normal, but not as harsh as last year's. Hurricanes Katrina and Rita caused heavy damage to offshore platforms and pipelines, as well as onshore refineries, sending gasoline prices skyrocketing amid spot shortages and emergency imports from Europe.

Oil industry and government officials asserted at a press conference in Washington that they would be better prepared this summer to respond to any hurricane-related damage to energy infrastructure, mainly because of better coordination and communication now in place.

"We did it as good as we could" following last year's hurricanes, said Red Cavaney, head of the American Petroleum Institute. "But we look forward to doing it better next time." Cavaney said the U.S. will again be able to rely on Europe for emergency gasoline imports should that become necessary.

Elmer P. Danenberger, chief of offshore regulatory programs at the Minerals Management Service, said the industry has made significant progress in the past year strengthening offshore drilling units so that they are better moored to the ocean floor. "As much as possible has been done in the offseason," Danenberger said.

On Tuesday, Nymex gasoline futures rose by 1.31 cent to finish at $2.1499 a gallon while heating oil futures rose 2.34 cents to close at $2.0039 a gallon.

Nymex natural gas futures fell 3.1 cents to settle at $6.123 per 1,000 cubic feet.

Natural gas futures are near a one-year low and some analysts say that if inventories continue to grow at this pace, the country could run out of natural-gas storage capacity before winter, a prospect which should exert downward pressure on prices.

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