Oil Prices Finish Higher

Concerns about gasoline supplies again surface.
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Updated from 11:14 a.m. EDT

Oil prices rose Tuesday on renewed concerns that demand for refined fuel might outpace supply in the fourth quarter.

The July crude contract, which became the front-month benchmark Monday, closed up 51 cents at $49.67 a barrel on Nymex. Unconfirmed reports about a refinery fire in Texas caused gasoline prices to jump about 3 cents to $1.42 a gallon.

Despite OPEC's efforts to contain prices by boosting production above its formal quotas -- and despite growing inventories in the U.S. -- many analysts continue to see prices heading higher this year.

"There is a real possibility that demand will be higher than supply in the fourth quarter," says David Heikkinen, analyst at Southcoast Capital. For many, the lack of investment in refining capacity, the difficulties accessing large oil reserves, and the consistent ability of small supply disruptions to menace the market are signs that oil prices will remain tight going forward.

Prices are down about 16% since the peak of $58.28 in early April, but are still some $7 higher than this time a year ago.

The Energy Department will release its closely watched weekly inventory report on Wednesday. Analysts are expecting a 1.3 million-barrel build in oil stocks, while gasoline inventories are estimated to rise about 200,000 barrels.

In another message of intentions, Saudi Arabia said it would boost production capacity by 14% to 12.5 million barrels a day by 2009 and build new refineries to meet rising demand,

Bloomberg

reported the country's oil minister, Ali al-Naimi, as saying. State-owned Saudi Aramco is developing three "mega oil projects" that could add 3 million barrels a day to the current 1.5 million in spare capacity.

Shares of oil refiners are trading higher Tuesday following media coverage about high refining margins and global lack of refining capacity. The group was led by

Tesoro

(TSO)

, with a 5.35% increase to $42.36;

Frontier Oil

(FTO)

, which gained 4.47% to $46.36; and

Valero

(VLO) - Get Report

, which added 2.18% to $67.44.

In the drilling universe,

Diamond Offshore

(DO) - Get Report

gave investors an update on seven pending drilling deals that are estimated to generate about $1.2 billion in 2006 and beyond. The deals, which are geographically located in the Gulf of Mexico, Brazil and the U.K.'s Northern Sea, are mostly renewals of existing contracts with dayrate increases. Shares rose 93 cents, or 2.22%, to $42.90.

Elsewhere,

Berkshire Hathaway's

(BRK.A) - Get Report

MidAmerican Energy said it will acquire PacifiCorp, a utility company owned by Scottish Power, for $9.4 billion in cash and assumed debt. PacifiCorp sells power in Oregon, Wyoming, Washington, California, Utah and Idaho.

Shares of most major oil producers climbed Tuesday.

Exxon Mobil

(XOM) - Get Report

rose 0.46%;

Chevron

(CVX) - Get Report

gained 0.40%;

ConocoPhillips

(COP) - Get Report

increased 0.70%;

Royal Dutch/Shell

(RD)

rose 0.15%; and

BP

(BP) - Get Report

added 0.23%.