Oil Rises to Close Above $71 a Barrel
Monday July 2, 6:37 pm ET
By John Wilen, AP Business Writer
Oil Rises to Close Above $71 a Barrel on Concerns About Gas Supplies and Tensions With Iran
NEW YORK (AP) -- Oil prices rebounded Monday from early declines to settle above $71 for the first time in 10 months as traders focused on a refinery outage in Kansas and new accusations about Iran's role in Lebanon and Iraq.
Early in the day, investors sold to lock in profits from last week's rally, which drove prices above $70 a barrel for the first time since August. But as the day wore on, light, sweet crude for August delivery rose, settling up 41 cents at $71.09 a barrel on the New York Mercantile Exchange and up from a session low of $69.57. On Friday, oil prices rose to close above $70 a barrel for the first time in 10 months.
On Monday, gasoline futures for August rose 0.59 cent to settle at $2.2487 a gallon. Earlier in the day, gas futures were off by more than 4 cents a gallon.
August Brent crude futures rose $1.22 to settle at $72.63 a barrel on the ICE Futures exchange in London.
Nymex heating oil futures for August rose 1.94 cents to $2.0618 a gallon, while natural gas prices fell 0.9 cent to settle at $6.764 per 1,000 cubic feet.
Retail gasoline prices extended their decline despite the recent surge in futures prices. The average national price of a gallon of gas fell to $2.957, down 0.4 cent overnight and off 27 cents from its May peak of $3.227, according to AAA and the Oil Price Information Service.
The closure of a 108,000 barrel-per-day refinery in Coffeyville, Kan., due to flooding reignited concerns about the refining industry's ability to keep pace with summer gasoline demand, said John Kilduff, vice president of risk management at Man Financial Inc. The Coffeyville Resources refinery can produce 2.1 million gallons of gasoline per day.
"These days, every little bit counts," Kilduff said.
The concern is particularly acute with the nation entering peak summer driving season between the July 4 and Labor Day holidays.
Last week, Energy Department's Energy Information Administration reported that gasoline inventories dropped 700,000 barrels in the week ended June 22, when analysts polled by Dow Jones Newswires expected a 1.1 million barrel gain.
But while the refining industry has experienced an unusual number of unplanned outages this year, analysts say there are signs more facilities are coming back online. That perception was also aided by last week's inventory report, which showed that refinery utilization jumped 1.8 percent, higher than the 0.8 percentage point increase analysts had expected.
Some analysts think that means a big increase in gasoline inventories is pending.
"With refinery runs up, I think people are expecting some growth in product inventories this week," said Michael Lynch, president of Strategic Energy & Economic Research Inc., in Winchester, Mass.
Others disagree. Addison Armstrong, an analyst at TFS Energy in Stamford, Conn., expects gasoline inventories to fall by almost 1 million barrels as consumers pour the additional fuel refiners make straight into their vacation-bound gas tanks.
The market's fundamentals simply support high oil and gas prices, Kilduff said.
"Our advice, what we're telling people, is buy the dips," Kilduff said. "It's more just trading the range."
Also supporting prices on Monday was an accusation by U.S. military spokesman Brig. Gen. Kevin J. Bergner that Iranian forces helped plan a January raid on a government building in Karbala, Iraq, in which five American soldiers were killed. Bergner also accused Iran of using the Lebanese Shiite militia group Hezbollah as a "proxy" to arm Shiite militants in Iraq.
Geopolitical events support oil prices because of the possible supply disruptions that could result if words escalate into violence.
Many analysts expect Nymex oil prices to continue rising in coming weeks and re-establish the contract's historic premium over Brent crude. That premium evaporated and turned into a deficit as inventories built up this spring in Cushing, Okla., the Nymex delivery point, behind the bottleneck of out-of-commission domestic refineries. Now, with refineries returning to service, crude inventories are falling.
"We continue to believe that prices will trade above $75 and may even try to test $78.40," wrote Peter Beutel, president of U.S. energy risk management firm Cameron Hanover, in a research note.
Associated Press Writers Pablo Gorondi in Budapest and Gillian Wong in Singapore contributed to this report.
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