RKMBs Forums .::Important::. Politics and Current Events Who's to blame for higher gas prices?

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Oil Prices Settle Above $71 a Barrel
By BRAD FOSS, AP Business Writer

WASHINGTON - Oil prices settled at a new high above $71 a barrel Tuesday as supply threats around the world overshadowed a new report from OPEC forecasting weakening global demand.

There was no fresh catalyst for Tuesday's buying, but analysts said the market psychology would likely remain bullish until there is some resolution to a variety of geopolitical uncertainties, particularly the West's nuclear dispute with Iran and output disruptions in Nigeria.

Global Insight oil analyst Kevin Lindemer said the slowing consumption growth and swelling inventories of crude oil in the United States would typically help pull down prices, but "all of that is getting swamped right now by Iran and Nigeria."

Light, sweet crude for May delivery on the New York Mercantile Exchange rose as high as $71.60 a barrel, surpassing the previous intraday record of $70.85 set Aug. 30. Oil settled at $71.35, an increase of 95 cents from Monday's record closing price.

With gasoline prices averaging $2.79 a gallon, U.S. motorists are shelling out $212 million per day more than a year ago, and President Bush said Tuesday he was "concerned" about the impact this was having on American families and small businesses.

Many economists believe the impact of $70 oil on the country's financial engine will not be as drastic as it was last August in the aftermath of Hurricane Katrina. The argument is that consumers have gotten accustomed to prices at today's levels because they have moved up gradually and that it will take a sharp and sustained leap in energy prices before there are any serious economic ramifications.

"We will feel real pain at the pump before this market tops out," said James Cordier, president of Liberty Trading in Tampa, Fla. Cordier predicted gasoline prices could rise as high as $3.50 a gallon in some parts of the country this summer.

So far, demand for gasoline continues to rise, albeit at a slower pace than a year ago, according to Energy Department data.

The Organization of Petroleum Exporting Countries on Tuesday revised its demand-growth forecast for 2006 to 1.42 million barrels a day, down from 1.46 million barrels per day in the previous report. The cartel estimates that global crude-oil demand will be slightly above 84.5 million barrels per day — about half a million barrels per day lower than the current Wall Street consensus.

OPEC expressed particular concern about the impact rising interest rates would have on consumer spending in the U.S., where gasoline demand grew at a slower rate in the first quarter and could "carry over into the second half of the year."

Oil prices are now 42 percent higher than last year. But with global crude oil production only barely keeping up with demand, leaving a slim margin for error if there is a prolonged supply interruption, experts say prices are likely to climb further.

Traders are anxious that U.S.-led efforts to stop Iran, OPEC's second-largest member, from pursuing a suspected nuclear weapons program could lead to a disruption in Persian Gulf supplies. On Tuesday, Russia maintained its opposition to sanctions against Iran, while President Bush said he would continue to focus on diplomacy but that "all options are on the table" to prevent Iran from developing atomic weapons.

In Nigeria, militant attacks have led Royal Dutch Shell PLC to shut large amounts of production. Platts estimates Nigeria's output fell by 220,000 barrels per day in March, compared with February.

Also underpinning high oil prices is booming demand in emerging economies such as China and India.

"The market sentiment now is much more nervous," said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo. "Things haven't changed so much, but as we approach the summer driving season we'll need more crude to make gasoline and we know also that U.S. gasoline production has its limitations because of the tight refining capacity."

Sen. Charles Schumer (news, bio, voting record), D-N.Y., implored the Federal Trade Commission on Tuesday to "rigorously monitor" the U.S. refining industry to make sure companies were producing as much gasoline as they could and "not manipulating the amount of product flowing to the market."

In London, Brent crude for June delivery at the ICE Futures exchange also hit an all-time high of $72.64 a barrel, before easing back to settle at $72.51, an increase of $1.05 and a record close.

Gasoline futures Tuesday rose 5.42 cents to close at $2.2239 a gallon while heating oil futures gained 2.79 cents to settle at $2.0508 a gallon. Natural gas futures rose 43.1 cents to settle at $8.008 per 1,000 cubic feet.

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_{AP Business Writer Jane Wardell in London contributed to this report.}

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