NEW YORK – Crude oil prices rose above $70 a barrel Wednesday after the U.S. government reported that gasoline inventories grew at a slow clip last week, despite high production levels.
The build in U.S. gasoline inventories was 300,000 barrels, even as gasoline production surged to 9.35 million barrels a day, up 1.5 percent from a week earlier and more than 4 percent higher than a year ago — suggesting that fuel demand isn't being hampered by high prices.
"Once again, gasoline demand remains unfettered," said John Kilduff, analyst at Fimat USA, who noted that analysts had expected a bigger rise in inventories. "The consumer has clearly made the choice to pay $3 a gallon for gasoline and cut back in other areas of spending. Given the price point we're at, we would've thought that demand would be contracted slightly, but it's not."
Gasoline inventories are now at 213.4 million barrels, about 1 percent below year-ago levels. Refinery utilization is at around 93 percent — lower than it normally is this time of year, Kilduff said, because Gulf coast refineries are still recovering from damage from last year's hurricanes.
Meanwhile, U.S. crude inventories rose 1.4 million barrels to 347.1 million barrels in the week ending June 16, according to the U.S. Department of Energy's weekly petroleum report, putting them at their highest level since May 1998. Distillate inventories rose 1.7 million barrels to 124.5 million barrels, more than 8 percent above year-ago levels.
Light sweet crude for August delivery rose 76 cents to $70.10 a barrel in early afternoon trading on the New York Mercantile Exchange.
July gasoline futures rose 4.94 cents to $2.055 per gallon.
July heating oil futures rose 2.66 cents to $1.934 a gallon, while July natural gas futures rose nearly 10 cents to $6.60 per 1,000 cubic feet.
At the pump, U.S. drivers are paying on average $2.854 for a gallon of unleaded regular gasoline, the AAA said Wednesday. That's down about a cent from a day earlier and down about 3 cents from a week ago, but still up more than 30 percent from a year ago.
The mood in the energy markets has seesawed in recent weeks, as traders try to gauge from the verbal sparring between Iran and the West the possibility of Iran — the world's fourth-largest oil producer and exporter — halting exports if provoked.
Earlier this week, oil prices declined amid conciliatory remarks out of Iran on Saturday that the Western package of incentives meant to persuade the Islamic republic to give up its uranium enrichment program was "a step forward." But on Wednesday, President Bush accused Iran of dragging its feet on the incentive package. On Monday, Bush had threatened Iran that a rejection of the incentives will result in political and economic sanctions.
Saudi Arabia's ambassador to the United States, Prince Turki al-Faisal, said Tuesday that world oil prices could triple if the diplomatic standoff over Iran's nuclear program escalates into a military conflict.
Any rises in the energy markets have been capped, however, by fears that fuel demand could slow if U.S. inflation picks up, interest rates keep rising, or the global economy weakens.
Also on energy traders' radar was an oil industry labor dispute in Norway, where dozens of key oil service workers went on strike after state-led mediation failed to settle a new contract. Their employers threatened to retaliate by locking out roughly 2,500 more oil service workers.
Additionally, traders were watching developments out of Nigeria, where on Tuesday unidentified gunmen kidnapped two Filipino oil-industry employees of Petroleum Geo-Services, an Oslo, Norway-based oil-field services company.
The main militant group in the region, Movement for the Emancipation of the Niger Delta, denied responsibility for Tuesday's kidnapping in an e-mail to The Associated Press. Nigeria, Africa's biggest oil exporter and the United States' fifth-largest supplier, has seen its usual daily output of about 2.5 million barrels a day cut by some 20 percent due to attacks on oil pipelines.