Oil Prices Perk Back Up

Yesterday's big decline in gasoline inventories continues to foster buying.
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Updated from 2:45 p.m. EDT

Crude climbed Thursday as natural gas prices jumped and traders continued to fret about refiners' capacity constraints.

Oil for September delivery closed up 52 cents to $61.38 on Nymex. The contract topped out at an intraday record of $62.50 on Wednesday. Gasoline futures climbed 2 cents to $1.80 a gallon.

Natural gas prices rose 2% tot $8.52 per thousand cubic feet.

"The strength in natural gas and gasoline is pushing oil higher today," said Randy Diamond, trader at Miller Tabak $ Co.

Traders continue to try to reconcile an Energy Department report Wednesday showing an unexpected rise in crude inventories and a 4 million-barrel decline in gasoline stocks. The slide in gasoline occurred despite high capacity utilization among refiners.

Both gasoline and diesel retail prices rose last week, according to the Energy Department. Compared with a year ago, a gallon of gasoline is up 40 cents, while a gallon of diesel is up 56 cents.

The Energy Department report showed distillate demand is now 4.2% higher than it was last year. Analysts say the runup suggests higher fuel prices are not appreciably impacting economic activity in the U.S.

As a rule of thumb, growth in fuel demand is usually half the rate of growth in gross domestic product, analysts say. The situation is different this year, with demand outstripping the 3.4% GDP increase logged in the second quarter.

Also supporting higher oil prices Thursday were news reports that Iran's new president is posed to continue his country's nuclear program, a move that many fear could trigger political instability in the region and disrupt oil supply. Iran produces about 4 million barrels a day, or 5% from the world's total production.

The Energy Department also said recent refinery outages could push up fuel prices even further. "Recent refinery problems point to the potential for higher prices as the next few weeks unfold," it said in a report. Gasoline has already increased about 30% since the beginning of the year.

Meanwhile, refineries have been enjoying wide refining margins and heavy crude discounts.

Frontier Oil

(FTO)

said that record diesel crack spreads and wide crude oil differentials drove its second quarter earnings up 33%. The Houston, Texas-based refiner earned $66 million, or $1.16 a share, in the second quarter compared with $49.5 million, or 91 cents a share, last year. Analysts were expecting $1.10 a share in the latest quarter.

Frontier said the diesel crack spread increased to an average $15.51 a barrel, more than double last year's spread, and the light vs. heavy crude differential increased to $14.15 a barrel compared with $8.81 a year ago. Gasoline crack spread declined to an average of $12.50 a barrel from $14.23 last year.

Shares of Frontier Oil rose 77 cents, or 2.7%, to $29.52.

For

Tesoro

(TSO)

, however, second quarter income fell as high refining margins and crack spreads were offset by high operating costs. The San Antonio-based refiner earned $183.9 million, or $2.62 a share, compared with $213.1 million, or $3.11 a share, a year ago. Analysts on average, though, were expecting Tesoro's earnings to be even lower than that, at $2.48 a share, according to Thomson First Call.

"Overall refinery operating expenses were higher year-over-year mainly due to increased utility rates and throughput volumes, higher maintenance expenses and employee costs, and allocation of information technology expenses," the company said.

GlobalSantaFe

(GSF)

, the offshore drilling company, said increased dayrates for its rigs pushed revenue up by 50% in the second quarter. Net income for the quarter was $85.1 million, or 35 cents a share, on revenue of $574.8 million, compared with net income of $84 million, or 36 cents a share, on revenue of $382.1 million a year ago. That beats analysts' average earnings estimate of 28 cents a share compiled by Thomson First Call.

"Dayrates that we've secured over the past few months have exceeded our historical highs for all rig classes. We're especially pleased with the very attractive dayrates we've recently secured on long-term commitments ... for all three of our ultra-deepwater drillships. These term contracts give us increasing confidence in the strength and duration of this very robust market," the company said in a statement.

For the quarter, average rig utilization rose to 95% from 82% last year, and dayrates averaged $74,900, up from $61,000. Earnings were offset by labor cost increases and repair and maintenance costs.

GlobalSantaFe rose 83 cents, or 1.8%, to $46.50.

On the corporate front,

Exxon Mobil's

(XOM) - Get Report

CEO Lee Raymond plans to retire at year-end. He'll be replaced by President Rex Tillerson.

Exxon said Raymond, 66, has worked at the Irving, Texas, oil giant for 42 years, including 21 as a director. The move comes just a week after the company posted

another record quarter, featuring $7.6 billion in profit and $88.5 billion in sales, as Exxon cashed in on strong demand and high oil prices.

Among the major producers shares were mixed. ExxonMobil dropped 0.2%,

Chevron

(CVX) - Get Report

increased 0.6%,

ConocoPhillips

(COP) - Get Report

added 0.3%,

Royal Dutch/Shell

(RD)

, fell 0.02%, and

BP

(BP) - Get Report

dropped 0.2%.

Shares of the French oil giant

Total S.A.

(TOT) - Get Report

dipped Thursday after it said its second quarter production fell 3.7% to 2.5 million barrels of oil equivalent a day. Higher commodity prices though helped its net income rise to 3.16 billion euros, from 2.35 billion euros, ahead of expectations.

FMC Technologies

(FTI) - Get Report

, equipment provider to the oil and gas industry, said its earnings rose on the strength of its subsea systems unit. Net income in the quarter was $29.4 million, or 42 cents a share, and included an $11.9 million loss on its oil loading project offshore Algeria. Income in the second quarter of 2004 was 35 cents a share. Analysts had expected earnings of 32 cents a share in the second quarter this year.

"Our subsea systems business as well as our surface and fluid control businesses benefited from the increased oilfield activity. Subsea revenue improved more than $130 million over the prior-year quarter, further supporting our strong leadership position in deepwater developments," the company said.

The company also reported a record backlog of $1.8 billion, $1.2 billion of which are subsea orders.

Guidance for the full year was raised to a range of $1.60 to $1.80 a share, up from it previous estimates of $1.30 to $1.50 a share. Analysts on average expect full year earnings of $1.32 a share, according to Thomson First call.

Shares increased $1.68, or 4.5%, to $39.18.