Cost of oil rises, topping $75 a barrelCost of oil rises, topping $75 a barrel
Demand for gasoline still high as inventories are off
Updated: 7:47 p.m. ET Aug 2, 2006
LONDON - Natural gas prices rose Wednesday as scorching temperatures that baked states in the Northeast and the Midwest put pressure on the nation’s electricity grids.
Crude oil and gasoline prices also rose sharply after a government report showed that U.S. crude and gasoline inventories fell last week, and as a tropical storm gained strength in the Caribbean.
Air conditioners in the United States have been stretching the capacity of national electricity grids and driving up the price of natural gas — the lifeblood of many power plants. By midafternoon on Wednesday, Washington hit 98 degrees, New York 101 degrees, Boston 98 degrees, and Chicago 95 degrees, according to the National Weather Service.
When electricity use rises above normal levels, natural gas is the main fuel that utility companies use to run the extra turbines to meet demand.
“You’ve got a national heat wave coast to coast, and natural gas is the fuel used for peaking electricity demand,” said Jim Owen, a spokesman for the Edison Electric Institute, a Washington-based trade group.
Natural gas rose 22.5 cents to settle at $7.799 per thousand cubic feet Wednesday on the New York Mercantile Exchange, after soaring as high as $8.545.
That contract had surged 14 percent on Monday to settle at $8.211, the highest close since early February, and then fell about 8 percent on Tuesday. They are still well below their all-time high above $14 reached in October.
Wednesday morning, the U.S. Department of Energy said crude oil inventories fell by 1.8 million barrels in the last week of July to 333.7 million barrels — still 4 percent above levels a year ago.
Gasoline inventories slipped by 100,000 barrels to 210.9 million barrels, and are just about 1 percent above year-ago levels.
Distillate fuel inventories rose by 700,000 barrels to 132.6 million barrels.
What’s noteworthy is that refineries were operating at 90.8 percent last week, at a time of year when they should be operating at near capacity, said Peter Beutel, president of the New Canaan, Conn.-based consultant Cameron Hanover. So while inventories are fairly ample, Gulf Coast refining is vulnerable.
“Since hurricanes Katrina and Rita, American refineries have had trouble getting back to the levels of utilization before the storms,” he said. “What we can’t afford to happen is have a storm take any refinery out, even temporarily.”
“We’re not reaching a stage right now that is likely to have us waiting in gasoline lines, but a couple well-placed hurricanes ... could cause spot outages,” he added.
Forecasters said Tropical Storm Chris could become the Atlantic’s first full-fledged hurricane of the year by Wednesday night or Thursday morning, as the third named storm of the season brushed past islands in the eastern Caribbean and headed toward Puerto Rico.
Light sweet crude for September delivery rose 90 cents to settle at $75.81 a barrel Wednesday.
Gasoline futures rose more than 6 cents to settle at $2.3377 a gallon, while heating oil rose nearly 5 cents to settle at $2.1294 a gallon.
U.S. gasoline demand remains high, according to the Energy Department’s report, despite high pump prices. Over the last four weeks, motor gasoline demand has averaged 9.6 million barrels a day, which is 1.6 percent higher than the same period last year.
The average U.S. retail price of a gallon of regular unleaded gasoline was $3.001 on Wednesday, up from $2.926 a month ago, according to AAA.
In the Middle East, there were no signs of a quick resolution to the escalating conflict between Israel and Hezbollah guerrillas in Lebanon.
Oil traders have been focused on the violence for nearly three weeks, worried about possible supply interruptions. Iran, OPEC’s No. 2 supplier, is a backer of Hezbollah and is in the midst of a diplomatic standoff with the United Nations over its nuclear program.
On Tuesday, Iranian President Mahmoud Ahmadinejad rejected a U.N. Security Council resolution that would give his nation until Aug. 31 to suspend uranium enrichment.
On July 14, crude prices rose to a record $78.40 a barrel due to traders’ concern that Iran could cut supplies if it gets involved in the fighting in Lebanon and Israel.
The Energy Department will release last week’s natural gas inventory figures on Thursday, and market watchers are expecting a rise. The previous week, the United States had 2.76 trillion cubic feet of natural gas in underground storage — well above the 5-year average for this time of year of 2.27 trillion cubic feet, but it had slipped a bit from the prior week, causing some concern among traders.
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disclaimer: I do not own PRRPF or PSH (Portrush Petroleum) stock.