Crude Resumes Its Climb

Updated from 1:50 p.m. EST

Oil prices jumped again Tuesday as concerns over the Iranian nuclear standoff and low gasoline supplies outweighed a lower forecast for world crude demand.

April crude rose $1.33, or 2%, to close at $63.10. It was the second day oil rose 2% on supply worries.

Overnight, Iranian President Mahmoud Ahmadinejad said his country has an "undeniable right" to have nuclear energy and will not discontinue uranium enrichment in deference to the West. The U.S. and Europe have threatened Tehran with economic sanctions if it pursues uranium enrichment.

Russia and Iran were holding another round of talks Tuesday to hammer out a compromise ahead of the United Nations Security Council meeting later this week. That council is slated to discuss potential punitive measures against Iran for restarting uranium enrichment after a two-year hiatus.

Rising crude prices were also supported by ongoing supply problems in Nigeria, where insurgent attacks have driven down the country's daily crude production. Nigeria's oil minister increased the amount of crude lost by 100,000 barrels to 556,000 barrels per day. The West African country's output is now down 25% from a daily total of 2.2 million barrels.

Traders were shrugging off reports that crude stockpiles likely rose last week and world crude demand will be less than expected. In a survey conducted by Bloomberg, analysts were predicting a gain of 2.1 million barrels of crude in the Energy Department's weekly petroleum supply report due out Wednesday at 10:30 a.m. EST. Inventories, which total 335.1 million barrels, are at their highest level since May 1999.

The International Energy Agency, an adviser to 26 industrialized nations, slashed its forecast for world crude demand by 340,000 barrels a day to 84.74 million barrels per day because of rising crude and petroleum produce prices and lower demand in Southeast Asia.

Still, demand is higher than last year, when consumption rose 1.02 million barrels each day, thanks to surging demand in North America and China.

Refinery problems were pushing up oil product prices, with unleaded gasoline increasing 12 cents, or 7%, to $1.86 a gallon and heating oil rising 8 cents, or 5%, to $1.82 a gallon. Valero Energy's(VLO Quote) Benicia, Calif., refinery has been hit with continuing problems and BP's(BP Quote) refinery in Carson, Calif., was having problems restarting. Refiners have been closed for seasonal maintenance as they switch over to summer blends of gasoline.

Amerada Hess closed a gasoline processing unit at a St. Croix refinery by mistake and will need to repair the facility, Dow Jones reported. It could take up to two weeks to get the unit back online.

Lower refinery processing rates likely drove down the country's supplies of distillates, which include heating oil, by 1.3 million barrels and gasoline by 1 million barrels last week, according to a Bloomberg analyst poll. Distillates are nearly 14% above a year ago, while gasoline stocks are essentially the same.

Cooler weather forecasts for the Midwest and Northeast, areas that consume much of the country's natural gas supplies for heating, were propelling futures of the heating fuel up. Natural gas was climbing 16 cents, or 2%, to $7.17 per million British thermal units.

Although the National Weather Service is calling for below-normal temperatures through next week for much of the eastern U.S., high inventories will keep prevent any long-term rally in prices. There is 22% more natural gas in storage now than in the same period last year, and 54% more than the five-year average.