Oil Prices Surge Above $59 on Winter Worries

NEWYou can now listen to Fox News articles!

Oil prices climbed Tuesday on persistent fears that the heating oil supply would run short this winter when demand is expected to peak.

Light sweet crude for August delivery on the New York Mercantile Exchange (search) rose 80 cents to $59.55 per barrel, following the three-day Independence Day (search) holiday weekend in the U.S. On Friday, the contract had gained more than $2 a barrel to close at $58.75.

Heating oil rose 2.5 cents to $1.7359 a gallon while gasoline gained over 2 cents to $1.6705.

On London's International Petroleum Exchange, August Brent futures gained 34 cents to $58.28 a barrel. The contract was up more than $3 from its June 30 level of $55.04.

Ongoing concerns about U.S. investory levels keep overall sentiment in the market bullish, said Julian Lee, an energy analyst with the London-based Center for Global Energy Studies.

"I don't think one can rule out a spike to $65 a barrel, but we are looking at price levels in the upper $50s throughout July," Lee said.

Prices continued to be supported by concerns that North America's aging refineries will have to stretch production levels to the limit as they ramp up production of distillates, which include jet fuel and heating oil, ahead of winter.

The tightness in refinery capacity coupled with strong demand leaves little margin for refinery glitches to occur.

"Heating oil may have rallied because of strong global diesel demand," said New York-based Energyintel analyst George Orwel. He said heating oil's 17-cent climb over the last four weeks was "fueled by diesel demand and fears that U.S. refiners won't have time to make enough heating oil for next winter."

With global demand showing no signs of abating, except for a modest slow in demand growth in China, prices are unlikely to drop significantly this year, Lee said.

Meanwhile, U.S. affairs in the Middle East have propped up concerns of supply disruptions in the oil-rich Gulf.

New Iranian president Mahmoud Ahmadinejad (search) promised he would boost the transparency of his nation's oil deals and pursue a nuclear energy program.

Washington has been pressuring the Europeans, involved in tricky nuclear negotiations with Tehran, to make clear to Ahmadinejad that a nuclear-armed Iranwill not be tolerated.

Iran rejects U.S. claims that its nuclear program is for building weapons, insisting that it is pursuing nuclear technology to generate power.

Iran also accused the United States and Israelof a smear campaign against Ahmadinejad, who has been accused of taking American hostages in 1979 when radical students seized the U.S embassy in Tehran.

"Continued tensions with Iran seem inevitable. Ominously for tight oil markets, supplies are less secure and flowing less freely as a result," said Energyintel analyst Peter Kemp in a research note.

"The U.S. is clearly uncomfortable with the results of presidential elections in Iran, and although this does not act as an immediate price trigger, ongoing market concerns support bullish sentiment," Lee said.

Despite markets being amply supplied, oil prices have remained persistently high in the past year with the price of crude oil futures about 60 percent above year-ago levels.